Impact of Growth and Profitability on Dividend Policy : Evidence from Cement Sector of Pakistan

Abstract

This research study investigates the relationship of firm’s growth and profitability on dividend policy in cement sector of Pakistan. Growth and profitability are taken as an independent variables and dividend policy is dependent variable in this study. Dividend Policy is a set of guidelines that a firm use for the decision of how much return or payments will be given to the company’s shareholder on their investment. Profitability means that ability of an investment to give the return for using it. If there is no profit in the business, then firm cannot be survived in long run. Such a sort of study was conducted very rare in the developing countries like Pakistan. However in comparison to this few studies have been conducted in the developed economies. So there is a huge literature gap exist as far as developing countries and most importantly Pakistan is concern. In order to overcome this gap researcher takes help from the research conducted in the same subject in the developed economies. As the cement industry is one of the most important industry in the developing economies as it performs an important role in the infrastructural development of the country. The secondary data has been collected from the cement sector of Pakistan. The sample size includes 10 firms from cement sector of Pakistan, which are randomly selected. The period of study is consisting of 8 years that is from 2010-2018. The reason behind the selection of data is to gather the most recent data in order to interpret results. The Regression and correlation analysis are conducted to examine the relationship among growth, profitability and dividend policy. The net profit margin and dividend policy are positively correlated and return on assets, growth and dividend policy are negatively correlated with each other. There is a significant relationship among the independent variable and dependent variable. So, we reject the null hypothesis and alternative hypothesis is accepted as per our findings. According to the current scenario of Pakistan i.e. CPEC and other developmental projects in progress, cement industry become very vital and off course in this case it is beneficial for most of investors to invest in this industry because there is a lot more chance that firms in the industry will grow more. Now the most important thing from investor’s point of view is that how much return they will get in that’s growing case. In this research researcher uses only ten companies and applied co-relation regression analysis to find the relationship between variables as this type of study didn’t happen much in Pakistan. Future researcher can use more number of companies and can apply various other tools to judge the relationship between the variables. To find out is it beneficial for investors to invest now in these firms or to invest later. This study consequently suggests that the board of directors must announce 3 the dividends pay-outs which are constant through the profits earned in a specified financial year. This practise will encourage their investors and empower them to maximize their capital in the firm and will also retain the investors who pursue to capitalize in firms which pays the dividends.