Dividend Policy and Share Price Volatility of Listed Construction Firms at the Nairobi Securities Exchange, Kenya

Abstract

The inherent volatility in all stock market scares low risk takers from the financial market and is capable of deterring investments. One of the factors that drives investors’ reactions to stock pricing is the dividend policy. This study examined the influence of dividend policy on the volatility of stock prices of construction firms listed at the Nairobi Securities Exchange for the period spanning five (5) years from 2019 to 2023. The study was dealt with on the following objectives; to examine the influence of dividend pay-out on share price volatility of listed construction firms at the NSE, Kenya, to determine the influence of dividend yield on share price volatility of listed construction firms at the NSE, Kenya. The study was guided by the: Dividend relevance theory, and dividend irrelevance theory. This study adopted a correlational research design while dealing with the research objectives. A census method was employed in data collection before analysis of the audited financial statements that was downloaded from the firm websites in arriving at detailed and well informed conclusions by employing Multiple regression, Correlation and ANOVA techniques using the Statistical Package for Social Sciences (SPSS) to establish the existence (or lack of it) of the relationship between the independent variables and the dependent variable of the study. The findings revealed that dividend policy influenced share price volatility by; dividend pay-out ratio (r=0.111, β=0.036, t=4.7240); and dividend yield (r= -0.018, β= -0.003, t= 2.7130). The study recommended that potential and existing investors should opt for listed firms in the construction sector with a high dividend payout ratio compared to the earnings generated by the firms; Investors to invest in firms with high dividend payouts. The study achieved its main objective. Keywords: Dividend Policy, Dividend Pay-out, Dividend Yield, Share Price Volatility