Dividend policy in an inflationary environment. The case of dividend paying firms listed on the Zimbabwe Stock Exchange

This study was set out to investigate the influence of dividend payments on stock prices in an inflationary environment. The study also aimed at establishing the rational for and against dividend payments during periods of marked inflation rates, the forms of dividends and the dividend policies pursued by firms in inflationary environments. Dividend paying firms listed on the Zimbabwe Stock Exchange were the primary focus of this study. Random sampling was employed to pick the 20 companies under study. Data was collected using documentary review and questionnaires. A total of 88 company executives from these sampled firms participated in this study. Both qualitative and quantitative techniques were used to analyze the findings. The findings of this paper show that the number of dividend paying firms that paid cash dividends reduced to 40%; about 60% of the firms pursued the residual policy; and the majority of firms distributed value using bonus issues. The statistical analysis employed proved that dividend payouts have an effect on share prices in a hyper-inflationary economy. However, it was also proved that share price increases were due to other factors other than dividend payments. The currency was valueless for inflation rates were far too high for planning purposes and firms were struggling to survive. The few companies that paid dividends were fulfilling their long established obligations to investors and some didn’t have good investment projects. The paper recommends that corporate management should carefully examine the inflationary environment when formulating an optimal dividend policy for their firms during periods of marked inflation as survival must be the overriding goal of the organisation. This study has some additional implications for further research. Efforts to analyze the exact extent of price movements triggered by other factors other than dividends in a hyper-inflationary economy would be of great interest.