Abstract:
Dividend policy is company’s policy of distributing income to shareholders from
earnings. Dividend policy is measured by dividend per share, dividend yield and
dividend payout. Linkages between dividend policy and stock return is still obscure,
notably in non-financial companies. The objective of the study is to analyze the impact
of dividend policy on stock return of the non-financial companies listed in Colombo
Stock Exchange. The Purposive Sample comprises of 36 non-financial companies from
six sectors of Colombo Stock Exchange covering a time span from year 2014 to 2018.
Non-financial sectors selected for this study include Beverage Food and Tobacco,
Manufacturing, Chemicals and Pharmaceuticals, Health care, Power and Energy and
Motors. Data have been collected from annual reports of companies. Statistical
Package Stata 15.0 has been used to analyze and evaluate panel data using descriptive
statistics, Fixed and Random Effect. Finally, Hausman test was used to select the
appropriate model to explore the impact of dividend policy on stock return. This study
follows the fixed effect model. In order to explore the impact of independent variables
on stock return, three hypotheses have been developed and tested. Results reveal that
a positive impact is found for dividend per share, while there is a negative relationship
between dividend yield and stock return. The impact of dividend payout is deemed to
be insignificant. In addition, it is shown that firm size, asset growth and long-term debts
explain changes to stock return. It is concluded that dividend policy is relevant with
stock return for the non-financial companies listed in Colombo Stock Exchange.
Findings provide new insights for investors, company management and policy makers
to enhance the performance in stock market.
