Profitability Ratio, Dividend Payout Ratio and Stock Market Prices of Listed Deposit Money Banks in Nigeria

This study examined profitability ratio, dividend payout ratio and stock market prices of listed deposit money banks in Nigeria, focusing specifically on the effect of profitability ratio, the effect of dividend payout ratio, and their combined effect on stock market prices. The broad objective was to investigate the extent to which profitability ratio and dividend payout ratio explain movements in the stock market prices of listed deposit money banks in Nigeria. Specifically, the study investigated the effect of profitability ratio on stock market prices, determined the impact of dividend payout ratio on stock market prices, and ascertained the combined influence of profitability ratio and dividend payout ratio on stock market prices of deposit money banks in Nigeria.
The study was anchored on Signalling Theory, complemented by Dividend Relevance Theory and Agency Theory. An ex post facto research design was adopted, relying entirely on secondary data extracted from the audited annual reports and financial statements of ten purposively selected deposit money banks listed on the Nigerian Exchange Group (NGX), covering the ten-year period 2015 to 2024 and yielding 100 bank-year panel observations. Data were analysed using descriptive statistics, correlation analysis, cross-sectional dependence and unit root tests, and panel data regression (Fixed Effects and Random Effects models, selected using the Hausman specification test), complemented by multiple regression for the combined model, at the 5% level of significance, with bank size, bank age and leverage included as control variables.
Profitability ratio had a positive and statistically significant effect on stock market prices (β = 7.706, R² = 0.807, F = 27.637, p = 0.000). Dividend payout ratio also exhibited a positive and statistically significant effect (β = 0.182, R² = 0.780, F = 23.733, p = 0.000). In the combined model, both profitability ratio (β = 2.231, p = 0.048) and dividend payout ratio (β = 2.376, p = 0.000) retained positive and significant effects on stock market prices (R² = 0.648, F = 34.544, p = 0.000), with dividend payout ratio exerting the more decisive and consistently significant influence of the two. Consequently, all three null hypotheses were rejected.
The study recommends that deposit money banks strengthen profitability by improving asset quality and controlling operating costs, adopt a stable and credible dividend payout policy, pursue growth in total assets driven by quality risk assets rather than size expansion for its own sake, strengthen corporate governance to compensate for shorter operating history, and manage leverage prudently within regulatory capital limits. The study concludes that profitability and dividend payout policy are fundamental and complementary drivers of shareholder value, jointly shaping how the market prices the shares of listed deposit money banks in Nigeria.

Profitability Ratio, Dividend Payout Ratio, Stock Market Prices, Deposit Money Banks, Signalling Theory.

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