Dividend Policy Metrics and Profitability of the Non-financial Firms Listed on the Nairobi Securities Exchange, Kenya

Dividend policy is a critical determinant of a firm’s financial performance because it influences investor attraction, resource allocation, and reinvestment decisions. Non-financial companies listed on the Nairobi Securities Exchange play a significant role in Kenya’s economy; however, their dividend payments have often been inconsistent due to volatile market conditions and economic constraints affecting profitability. This study examined the relationship between dividend policy indicators Dividend Payout Ratio (DPR), Dividend Yield (DY), Dividend Coverage Ratio (DCR), and Dividend Changes (DC) and the earnings capacity of non-financial firms listed on the exchange. The analysis was grounded in the Dividend Irrelevance Theory, Signalling Theory, and Agency Theory to explain how dividend practices influence firm profitability. A descriptive research design was adopted, covering a five-year period and utilizing financial and market data from selected non-financial firms. Data were obtained from audited annual reports and the exchange database, and were verified through multiple checks to ensure reliability and accuracy. Analytical results were presented using tables, graphs, and summary statistics. The findings revealed that all four dividend policy variables positively and significantly influenced firm profitability. Firms with balanced dividend payout ratios recorded higher returns on assets, suggesting that consistent dividend yields strengthen market confidence and enhance firm performance. Similarly, higher dividend coverage ratios signaled financial stability, while positive dividend changes improved investor perception and overall corporate performance. The study recommends that corporate managers adopt sustainable dividend strategies that balance shareholder returns with reinvestment needs. Regulators should strengthen guidelines to ensure transparent dividend practices, while investors should consider dividend indicators when making investment decisions. Overall, the study contributes to understanding dividend policy dynamics in emerging markets and provides practical insights for improving profitability and competitiveness among non-financial firms in Kenya.