Factors that Determine Dividend Payout. Evidence from the Financial Service Sector in South Africa

Dividend payout signals good news to investors. Firms’ that pays out dividends demonstrate that they have enough cash to distribute the excess to shareholders while investing in profitable projects. This study investigated the factors that determine dividend payout using ten companies listed in the financial service sector from 2012-2016. Using a multiple regression analysis, the result reveals that return on asset, return on equity and earnings per share, accounts for only 57% of dividend payout movements. Furthermore, only the earnings per share are significantly positively correlated to dividend payout while return on asset and return on equity was not. This finding implies that, firms in the financial service sector in South Africa have been distributing dividends to their shareholders from their earnings and other sources, which might possibly be from borrowing. This finding is contrary to the theory suggested by finance literature.

Keywords: dividend payout, return on asset, return on equity, Earnings per share, financial service sector.