ABSTRACT
Studies from other countries in both developing and developed countries economies have shown that there exists a relationship between the dividend policy that firms adopt and share prices. In Kenya, most of the firms listed in the stock exchange pay dividends semi annually . There is no legal requirements for the firms to adopt a specific dividend policy schedule ,however dividend distribution do face legal restriction for instance ,Dividends should not be paid out of capital unless liquidating This research attempts to determine the impact of dividend policy on share prices for listed companies at the NSE.Companies listed at the NSE were examined for a period of four years (2004-2007) .The empirical estimation was based on regression analysis of the relationship between stock prices and dividend policy . The dividend policy measures which include ( dividend yield and payout ratio) have significant impact on the share volatility. From the study it was found out that there exist a strong relationship between the share price and the dividend announcement because of the of the information signaling. This study gives a generalized view in the relationship between dividends and share price. Dividend policy has an effect on the share prices of the firms quoted in the NSE thus; companies (firms) should pay dividends to maintain high share prices.
