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Effect of Dividend Growth on the Share Price of Listed Companies in Nigeria

Abstract

Dividend growth is an important indicator of changes in the amount of dividend distributed to shareholders over time and provides useful information about a company's earnings capacity, cash-flow strength, financial stability, and future prospects. Share price represents the market price assigned to a company's shares by investors and reflects expectations concerning future earnings, dividends, risk, growth opportunities, and overall corporate performance. Consistent growth in dividend payments may provide a positive signal to investors regarding management's confidence in the company's ability to generate sustainable earnings and cash flows, potentially increasing demand for its shares and resulting in higher share prices. Conversely, declining or unstable dividend growth may create uncertainty regarding the company's financial position and future prospects. In Nigeria, listed companies operate in an economic environment characterized by persistent inflation, exchange rate volatility, high interest rates, changing investor expectations, economic uncertainty, and fluctuations in corporate earnings. These conditions can influence companies' ability to sustain dividend growth and may affect investors' valuation of dividend-paying companies. Effective dividend policy is therefore important for balancing shareholder returns with the retention of earnings required for business expansion and investment. Regulatory institutions such as the Securities and Exchange Commission (SEC), the Financial Reporting Council of Nigeria (FRCN), and the Nigerian Exchange Group (NGX) promote transparent financial reporting and corporate governance practices that enable investors to evaluate dividend policies and corporate performance. Despite these regulatory efforts, listed companies differ considerably in their dividend growth patterns and share price performance, raising questions about whether dividend growth significantly influences share prices. Although previous studies have examined dividend policy, dividend payout, dividend per share, and share price, empirical evidence regarding the effect of dividend growth on the share price of listed companies in Nigeria remains limited and inconclusive. Against this background, this study investigates the effect of dividend growth on the share price of listed companies in Nigeria. The study is anchored on Dividend Relevance Theory, Bird-in-the-Hand Theory, and Signaling Theory. Dividend Relevance Theory suggests that dividend decisions can influence the value of a company because investors may attach importance to the timing and certainty of dividend income. Bird-in-the-Hand Theory proposes that investors may prefer relatively certain current dividend income to uncertain future capital gains, making sustained dividend growth potentially attractive to shareholders. Signaling Theory suggests that changes in dividend payments convey information about management's expectations concerning future earnings and cash flows, with sustained dividend growth potentially serving as a positive signal of corporate financial strength. Collectively, these theoretical perspectives provide a comprehensive framework for explaining the relationship between dividend growth and share price of listed companies in Nigeria. The study adopts a quantitative research design using a structured questionnaire administered to chief executive officers, chief financial officers, finance managers, accountants, financial controllers, investment analysts, portfolio managers, fund managers, stockbrokers, institutional investors, internal auditors, external auditors, and other professionals involved in financial management and investment decisions within selected listed companies in Nigeria. A stratified random sampling technique will be employed to ensure adequate representation of companies operating in the financial services, manufacturing, consumer goods, industrial goods, oil and gas, telecommunications, agriculture, healthcare, and other sectors listed on the Nigerian Exchange Group (NGX). Dividend growth will be measured using the percentage change in dividend per share over time, consistency of dividend increases, average annual dividend growth, sustainability of dividend growth, and management's capacity to maintain increasing shareholder distributions, while share price will be measured using market price per share, annual share price appreciation, share price growth, market-adjusted share price performance, and share price volatility. Primary data collected from respondents will be analyzed using descriptive statistics to summarize respondents' demographic characteristics and perceptions regarding dividend growth and share price. Structural Equation Modeling (SEM) will be employed to examine the effect of dividend growth on share price. The measurement model will be evaluated using Cronbach's Alpha, Composite Reliability (CR), Average Variance Extracted (AVE), and Confirmatory Factor Analysis (CFA) to establish the reliability and validity of the research instrument. Additional diagnostic tests, including multicollinearity assessment, common method bias, and model fit indices such as the Comparative Fit Index (CFI), Tucker-Lewis Index (TLI), Root Mean Square Error of Approximation (RMSEA), and Standardized Root Mean Square Residual (SRMR), will be conducted to ensure the adequacy, consistency, reliability, and robustness of the structural model. The study anticipates that dividend growth will have a significant positive effect on the share price of listed companies in Nigeria. Sustained growth in dividend payments is expected to enhance investor confidence by providing evidence of improving earnings capacity, stronger cash flows, and management's confidence in the company's future financial position. Investors may interpret consistent dividend increases as a positive signal concerning the company's ability to generate sufficient earnings and cash flows to support shareholder distributions. Such positive expectations may increase demand for the company's shares and contribute to higher share prices. Dividend growth may also attract income-oriented investors and strengthen the perceived attractiveness of a company's shares relative to alternative investments. However, excessive dividend growth may reduce retained earnings available for profitable investment opportunities, expansion, technological development, and working capital requirements. In addition, dividend increases that are not supported by sustainable earnings or cash flows may create concerns about future dividend reductions. Therefore, the effect of dividend growth on share price is expected to depend on the sustainability of dividend increases, earnings quality, cash-flow strength, investment opportunities, and prevailing market conditions. Overall, sustainable dividend growth is expected to contribute significantly to investor confidence and share price performance among listed companies in Nigeria. This study is expected to make significant theoretical and empirical contributions to the literature on dividend policy, financial accounting, corporate finance, and capital market valuation by providing comprehensive evidence on the relationship between dividend growth and share price of listed companies in Nigeria. Unlike previous studies that broadly examined dividend policy, dividend payout ratios, or dividend per share, this research specifically evaluates dividend growth as a determinant of share price using primary data and Structural Equation Modeling (SEM). The findings will provide valuable insights for listed companies, financial managers, accountants, investment analysts, portfolio managers, fund managers, investors, stockbrokers, auditors, the Securities and Exchange Commission (SEC), the Financial Reporting Council of Nigeria (FRCN), the Nigerian Exchange Group (NGX), professional accounting bodies, policymakers, regulators, and academic researchers regarding the importance of sustainable dividend growth in capital market valuation. The study will also provide evidence-based recommendations for developing sustainable dividend policies, improving earnings and cash-flow management, balancing dividend distributions with investment requirements, enhancing investor communication, and strengthening shareholder confidence to support sustainable share price performance among listed companies in Nigeria.

Keywords: Dividend growth, share price, listed companies, dividend policy, dividend per share, shareholder returns, investor confidence, market valuation, corporate finance, Structural Equation Modeling (SEM), Nigeria.