The Impact of Dividend Policy on Shareholder Wealth: A Study of Fertilizer Companies in Pakistan

Abstract

This research aims to examine the influence of dividend policy on shareholder wealth within Pakistan’s fertilizer sector over the period from 2015 to 2024. The study focuses on listed fertilizer firms, evaluating the effect of dividend payout ratio, dividend yield, and earnings per share (EPS) on the market price of shares, which serves as a proxy for shareholder value. In this study, market price per share represents the dependent variable (shareholder wealth), while dividend payout ratio, dividend yield, and EPS are the independent variables. Employing panel data analysis techniques, including regression and correlation methods, the study estimates the degree to which these financial indicators predict changes in shareholder wealth. The Panel Least Squares (PLS) approach is applied to determine the strength and nature of the relationship among the variables. The coefficient of determination (R-Square) and F-statistic are used to assess the explanatory power and significance of the model.The findings show that earnings per share (EPS) play a key role in driving shareholder wealth, reflecting how strongly investors value company profitability. On the other hand, the dividend payout ratio didn’t have much impact, and higher dividend yields were actually linked to lower share priceshinting that investors may be more focused on long-term growth than short-term payouts.