THE NEXUS OF DIVIDED PAYOUT AND PROFITABILITY PERFORMANCE OF INSURANCE FIRMS IN NIGERIA.

THE NEXUS OF DIVIDED PAYOUT AND PROFITABILITY PERFORMANCE OF INSURANCE FIRMS IN NIGERIA.

The time value of money is a basic investment concept and a basic element in the coventionary theory of finance which dividend policy payment is not excluded. The decision to pay dividend out of earning for a current year rest on the corporate policy and had been issue of interest in financial literature, Nissim and Ziv (2001). Black (1976) hinted that “The harder welook at the dividend picture, the more it seems like a puzzle, with pieces don’t fit together”, study on dividend policy have not only grown over time but also generated many theories of study.

In preliminary corporate finance, dividend policy was just concerned with selecting between payments of earnings to shareholders as cash dividend or retaining the profit in firm. Lintner, (1950) raised questions on dividend: (i) Is it better to keep dividends payment at the present amount or alter it? (ii) Do shareholders wants to have fixed dividend payments, or they prefer dividend payments updated with earnings? (iii) What kind of investors’ dividend policy should attract? Younger or Older?.

Masum (2014) explained that a suitable dividend policy is an important decision for a firm because flexibility to invest in future projects depends on the amount of dividends that they pay to their shareholders. Outdel, et al (1973) pointed out that unconditional correlation between divided payments and the current earning would be a perfect hedge against inflation given that they are held up to a suitable investment horizon. They argue that factors such as the expected stock prices, nominal earning forecast and the interest rate adjustment mechanism determine the length of the appropriate investment horizon.

Dividend payout is the portion of earning allocated to the shareholders at specific periods which might increase or decrease in the period that might have not consider the rate of change in price level. Usually, recommendations made by the directors are based on the earning of the company as dividends are not paid when there are no profits. To this end, this raises the question on the “Is dividend payout related to the profitability performance at the change in theprice level?

The study then seeks to contribute to knowledge by providing a thorough analysis of dividend payout policy of insurance firms, an emerging market after recapitalization to the profit made during the period under review so as to establish the significant of profitability performance. This is necessary to counter the notion of profit is the major determinant of dividend payout. The research is of interest of insurance industry because much emphasis had been drawn on the banking industry and need for this to establish the structure of its dividend layout.