Free Cash Flow and Dividend Policy: Evidence from JSE-Listed Industrial Firms

Purpose This study examines the relationship between free cash flow and dividend policy among industrial firms listed on the Johannesburg Stock Exchange, with particular attention to whether free cash flow influences the decision to distribute dividends or the magnitude of dividend payouts.Motivation Although dividend policy has long been debated in corporate finance, empirical research typically focuses on dividend payout levels rather than the prior decision to distribute dividends. This distinction is particularly relevant in emerging markets such as South Africa, where firms more frequently suspend or omit dividend payouts due to economic volatility and financing constraints.Design/Methodology/Approach Using a panel of 40 JSE-listed industrial firms from 2015 to 2024, the study employs panel least squares regression to analyse dividend payout levels and binary logistic regression to examine the probability of dividend payouts.Main findings Free cash flow is not a statistically significant determinant of the magnitude of dividend payouts but is positively associated with the probability that firms distribute dividends.Practical implications/Managerial impact The findings suggest that internally generated cash is more strongly associated with firms’ decisions to distribute dividends than with the magnitude of dividend payouts.Novelty/Contribution By distinguishing between the decision to distribute dividends and dividend payout magnitude, the study provides new evidence on how free cash flow shapes dividend behaviour in an emerging market context.