Dividend On Share As A Policy For Portfolio Selection of Bank Share (A Case Studies of Zenith Bank PLC, Guaranty Trust Bank PLC and First Bank Nigeria PLC.)

IPASJ International Journal of Computer Science (IIJCS)
Web Site: http://www.ipasj.org/IIJCS/IIJCS.htm

Email: editoriijcs@ipasj.org
ISSN 2321-5992
A Publisher for Research Motivation ........
Volume 3, Issue 5, May 2015
DIVIDEND ON SHARE AS A POLICY FOR

PORTFOLIO SELECTION OF BANK SHARE
[A CASE STUDIES OF ZENITH BANK PLC,
GUARANTY TRUST BANK PLC AND FIRST
BANK NIGERIA PLC.]
1
Emiola, Olawale. K. Steve , Alayemi, S. A2 , Igbinehi E.M
1,
Department of Mathematics, School of Applied Science, The Federal Polytechnic, Offa. Kwara State, Nigeria.
2
Department of Accountancy, School of Business and Management Studies,

The Federal Polytechnic, Offa. Kwara State, Nigeria.
Department of Mathematics, School of Applied Science, The Federal Polytechnic, Offa. Kwara State, Nigeria.
ABSTRACT
This research dividend on share as a policy for portfolio selection of bank share was aimed to show how portfolio selection of bank
share of the three most viable banks in Nigeria has been done using the past records of each bank dividend declarations for five
years. It also shows how allocation of available fund by investors should be allocated to available investment open to investors.
Lindo software was use to analyse the data and the analysis revealed that , any interested investor can decide to invest 14.69% of
available money on Zenith bank share, 15.91% on GTBANK share and 70% on First bank share. The portfolio will expect 6.5% of
dividend payment in the nearest future to minimize risk and maximize return.
Keywords: Dividend. Policy, Banks and Allocation
1. INTRODUCTION
One of the problems of investors is where to invest and how much to invest to maximize expected annual returns. Portfolio
is a collection or an aggregation of investments tools such as stocks, shares, mutual funds, bonds, cash to mention a few.
This portfolio is solely a function of the investors income, budget at a convenient time frame. The banking sector of the
Nigeria Economy has been viewed as the most profitable place to invest in its share capital. Most investors in the nation
have their major investment in these banks. There are 22 commercial banks in Nigeria, they are money deposit banks.
A cash dividend is money paid to stockholders, normally out of the corporation's current earnings or accumulated profits.
Not all companies pay a dividend. Usually, the board of directors determines if a dividend is desirable for their particular
company based upon various financial and economic factors. Dividends are commonly paid in the form of cash distributions
to the shareholders on a monthly, quarterly or yearly basis. All dividends are taxable as income to the recipients. Dividends
are normally paid on a per-share basis. If you own 100 shares of the ABC Corporation, the 100 shares is your basis for
dividend distribution. Assume for the moment that ABC Corporation was purchased at $100/share, which implies a $10,000
total investment. Profits at the ABC Corporation were unusually high so the board of directors agrees to pay its shareholder
$10 per share annually in the form of a cash dividend. So, as an owner of ABC Corporation for a year, your continued
investment in ABC Corp should give us $1,000 in dividend dollars. The annual yield is the total dividend amount ($1,000)
divided by the cost of the stock ($10,000) which gives us in percentage terms, 10%. If the 100 shares of ABC Corporation
were purchased at $200 per share, the yield would drop to 5%, since 100 shares now cost $20,000, or your original $10,000
only gets you 50 shares instead of 100. If the price of the stock moves higher, then dividend yield drops and vice versa.
2. Review of Related Literature

Dividend is an important issue when it comes to the choice of portfolio. Therefore, dividend policy adopted by an
organization is very important as this will affect the perception of investors vis--vis decision as to whether or not to buy
more or dispose off its shareholdings in the organization.
Volume 3 Issue 5 May 2015
Page 18


ISSN 2321-5992
The most common dividend policies are: stable dividend, constant payout ratio and residual policy [1]. Under the stable
dividend policy, fixed dividend per share is maintained by the management. No matter the level of profit, the rate of
dividend per share is maintained. In the case of constant payout ratio, fixed percentage payout is maintained by the
management. This means that as the profit made by the company increases the amount that will be paid as dividend will
also increase. This means the amount to be paid as dividend is a function of the profit made by the company residual
dividend policy is borne out of the profitable investment opportunity. Where there is profitable investment opportunity
available, the company may used part of the profit made to finance the investment and utilize the balance (residual) if any to
pay dividend[5]. In the literature, the number of factors identified as very important to be considered in the formulation of
dividend decisions is in increase and that is the more reason Sujata,200 concluded that corporate dividend policy will
remain a controversial issue and involve ocean deep judgments by decision makers. Firms with high growth opportunities
will pay less or may not pay at all [7] while a mixed growth options on pay out policy was proposed by [8]. The authors
suggested that the high growth firms are faced with both profitable opportunity and greater uncertainties.. under the
condition of uncertainties, more flexible payout policy is required by the firm. This proposition was supported by [3][4] who
opined that dividends changes are associated with the changes in growth rate and changes in rate of return on asset.
Investors prefer a firm with steady growth of dividend each year and avoid investment in companies with fluctuating
dividend policy[2][6].
3.METHOD OF DATA COLLECTION

To achieve the aims and objectives data were collected from research work of Annual Report, Vetiva Research. This
undoubtly a secondary data with possible error. Problem of researcher in Nigeria is getting reliable data to work with,
although data of this nature is not possible to collect primarily, we definitely depend on transcribing from available records.
The table below shows the Percentage Return on Investment (Dividend) on Zenith Bank, GTBank and First Bank
Source: STOCKWATCH WEEKLY from PEACE OF MIND ARCHIVE
4.METHODOLOGY
An investor has a fixed sum of money say K, to invest in share capital of three identified most viable bank in Nigeria
namely Zenith Bank plc, Guaranty Trust Bank plc and First Bank plc. The portfolio problem is to determine how much
money the investor should allocate to each investment so that total expected return is greater than or equal to some lowest
acceptable amount say, T and so that the total variance of future payments is minimized. Let g1, g2, g3designate the fraction
amount of money to be allocated to Zenith Bank share, GTBank share and First Bank share respectively and let g3denote
the return per Naira invested from investment ( = 1, 2, 3) during the S period of time in the past (S = 1, 2, ,5). If the
past history of payments in indicative of future performance, the expected future return per Naira from investment 1, 2, 3 is
And the expected return from three investments combined is

E = E1g1 + E2g2 + E3g3 (2)
The portfolio problem modeled as quadratic programming is
Minimize R = ATCA
Subject to: g1 + g2 + g3 = K
Eg1g1 + Eg2g2 + Eg3g3 T
g1 0, g 0, g 0, where C is the covariance matrix which is positive semi definite
Page 19

ISSN 2321-5992
Matrix C =
E is the mathematical expectation
Column Matrix A =
This can be translated as follows
Minimize R = (g g g)
(g, g, g)T
Subject to: g + g + g = K
g 0, g 0, g 0
g + g + g = K
g 0, g 0, g 0
5.DATA ANALYSIS
we calculate variance-covariance matrix from GBSTAT
MATRIX C =
Expected returns (Dividend) for each Bank share capital for each bank are 4.36%, 6.57%, 6.04% respectively. The budget
constraint investment portfolio optimization problem has three candidate assets (g, g, g) for our portfolio.
THE MODEL
We shall determine what fraction the investor should devote to each asset, so an expected return of at least 5% (equivalently
a growth factor of 1.05) is obtained while minimizing the variance in return and not exceeding a budget constraint. We also
impose a restriction that any given asset can constitute at most 70% of the portfolio. The variance of the entire portfolio is:
R = 4.39g + 0.40g + 5.18g +2.54gg + 1.63gg +1.23gg
Since variance is a measure of risk, we need to minimize
Hence Minimize
R = R = 4.39g + 0.40g + 5.18g +2.54gg + 1.63gg +1.23gg
Subject to:
! We start with N1
g + g + g = 1
! We want to end with at least N1.
1.044g + 1.066g + 1.060g 1.050
! No asset may constitute more than 70% of the portfolio
g< 0.70
g< 0.70
g< 0.70
The thesis employs LINDO software.
We create the Lagrangean Expression.
The impute procedure for LINDO requires this model be converted to true linear form by writing the first order
conditions. To do this we introduce Lagrangean multiplier for each constraint.
There are five (5) constraints, we shall use five (5) dual variables donated respectively as UNITY, RETURN, g FRAC,
g FRAC and g FRAC. The lagrangean expression corresponding to this model now is:
Min R (g g g) = R = 4.39g + 0.40g + 5.18g +2.54gg + 1.63gg +1.23gg
Page 20


ISSN 2321-5992
+ (g + g + g - 1) UNITY
+ [1.050 (1.044g + 1.066g + 1.060g)] RETURN
+ (g - 0.70) g FRAC
+ (g - 0.70) g FRAC
+ (g - 0.70) g FRAC
Next we compute the first order conditions
Adding the real constraints

g + g + g = 1
1.044g + 1.066g + 1.060g>1.050
g 0.70
g 0.70
g 0.70
THE FINAL MODEL IS THUS
MIN g1 + g + g + UNITY + RETURN + g FRAC + g FRAC + g FRAC
ST.
! First order condition for g:
8.78g +2.54g + 1.63g + UNITY 1.044RETURN + g FRAC > 0
2.54g + 0.80g +1.23g + UNITY 1.066RETURN + g FRAC > 0
1.63g + 1.23g + 10.36g + UNITY 1.060 RETURN + g FRAC > 0
! ---------------------- Start of Real constraints -----------------------! Budget constraints multiplier is UNITY:
g + g + g = 1
! Growth constraints, multiplier is RETURN:
1.044g + 1.066g + 1.060g> 1.050
! Max fraction of g, multiplier is g FRAC:
g< 0.70
! Max fraction for g, multiplier in g FRAC:
g< 0.70
! Max fraction of g, multiplier in g FRAC:
g< 0.70
END
QCP
THE SOLUTION OF THE MODEL FROM LINDO SOFTWARE
LP OPTIMUM FOUND AT STEP
1 FOR T = 1.062
OBJECTIVE FUNCTION VALUE
1) 0.7227284
VARIABLE
VALUE
REDUCED COST
IG1
0.000000
1.000000
G2
0.022728
0.000000
G3
0.700000
0.000000
UNITY
0.000000
1.000000
RETURN
0.000000
1.000000
G1FRAC
0.000000
1.000000
G2FRAC
0.000000
1.000000
G3FRAC
0.000000
1.000000
G1
0.277272
0.000000
NO. ITERATIONS=
1
0 FOR T = 1.063
Page 21

ISSN 2321-5992

1) 0.7681797
VARIABLE
IG1
G2
G3
UNITY
RETURN
G1FRAC
G2FRAC
G3FRAC
G1
NO. ITERATIONS=
0
1) 0.8136365
REDUCED COST
1.000000
0.000000
0.000000
1.000000
1.000000
1.000000
1.000000
1.000000
0.000000
VALUE
0.000000
0.159093
0.700000
0.000000
0.000000
0.000000
0.000000
0.000000
0.140907
REDUCED COST
1.000000
0.000000
0.000000
1.000000
1.000000
1.000000
1.000000
1.000000
0.000000
0 FOR T = 1.066
VARIABLE
IG1
G2
G3
UNITY
RETURN
G1FRAC
G2FRAC
G3FRAC
G1
NO. ITERATIONS=
0
VALUE
0.000000
0.113636
0.700000
0.000000
0.000000
0.000000
0.000000
0.000000
0.186364
0 FOR T = 1.065
VARIABLE
IG1
G2
G3
UNITY
RETURN
G1FRAC
G2FRAC
G3FRAC
G1
NO. ITERATIONS=
0
1) 0.9045446
REDUCED COST
1.000000
0.000000
0.000000
1.000000
1.000000
1.000000
1.000000
1.000000
0.000000
0 FOR T = 1.064
VARIABLE
IG1
G2
G3
UNITY
RETURN
G1FRAC
G2FRAC
G3FRAC
G1
NO. ITERATIONS=
0
1) 0.8590932
VALUE
0.000000
0.068180
0.700000
0.000000
0.000000
0.000000
0.000000
0.000000
0.231820
VALUE
0.000000
0.204545
0.700000
0.000000
0.000000
0.000000
0.000000
0.000000
0.095455
REDUCED COST
1.000000
0.000000
0.000000
1.000000
1.000000
1.000000
1.000000
1.000000
0.000000
0 FOR T = 1.067
Page 22

ISSN 2321-5992

1) 0.9500014
VARIABLE
IG1
G2
G3
UNITY
RETURN
G1FRAC
G2FRAC
G3FRAC
G1
NO. ITERATIONS=
0
1) 0.9954527
VALUE
0.000000
0.250001
0.700000
0.000000
0.000000
0.000000
0.000000
0.000000
0.049999
0 FOR T = 1.068
VARIABLE
IG1
G2
G3
UNITY
RETURN
G1FRAC
G2FRAC
G3FRAC
G1
NO. ITERATIONS=
DISCUSSION
REDUCED COST
1.000000
0.000000
0.000000
1.000000
1.000000
1.000000
1.000000
1.000000
0.000000
VALUE
0.000000
0.295453
0.700000
0.000000
0.000000
0.000000
0.000000
0.000000
0.004547
REDUCED COST
1.000000
0.000000
0.000000
1.000000
1.000000
1.000000
1.000000
1.000000
0.000000
G1
G2
G3
Variance
1.062
0.277272
0.022728
0.700000
0..7227284
1.063
0.231820
0.068180
0.700000
0.7681797
1.064
0.186364
0.113636
0.700000
0.8136365
1.065
0.140907
0.159093
0.700000
0.8590932 ***
1.066
0.095455
0.204545
0.700000
0.9045446
1.067
0.049999
0.250001
0.700000
0.9500014
1.068
0.004547
0.295453
0.700000
0.9954527
The summary of the results yields the table below for purpose of comparison and decisions
The increment that yields the minimum variance with mixed investment opportunity is 6.5%. Hence the optimum solution
to the model is g1 = 14.09%, g2 = 15.91% and g3 = 70%
6.CONCLUSION
The purpose of this research work is to show how portfolio selection of bank share of the three most viable banks in Nigeria
has been done using the past records of each bank dividend declarations for five years. It also shows how allocation of
Page 23


ISSN 2321-5992
available fund by investors should be allocated to available investment open to investors. The research has answered the
quest of how much an investor should allocate to each investment to minimize risk and maximize return.
7.RECOMMENDATION
Based on the available data of dividend payment to shareholders of Zenith bank, GTBANK, and First bank, any interested
investor can decide to invest 14.69% of available money on Zenith bank share, 15.91% on GTBANK share and 70% on
First bank share. The portfolio will expect 6.5% of dividend payment in the nearest future.
REFERENCE
[1]. Alayemi, S. A (2013). Relationship between dividend payout and market price of shares. A case study of selected
companies in food and beverages companies in Nigeria. Indian Journal of Commerce & Management Studies, Volume
IV, Issue 1, 116-121
[2]. Bamman W. S and Miller R. E (1995) Portfolio performance rankings in stock cycles. Financial Analysis journal
V51 (2) 79 87
[3]. Baskin, J. (1989). Dividend policy and volatility of common stock. Journal of Portfolio Management, 15(3), 19-25
[4]. Bauman, W. S. and R. E. Miller, (1994), Can Managed Portfolio Performance be Predicted?, The Journal of
Portfolio Management Vol. 20-4, 31-40.
[5]. EbrahamZam (2008) Modern Portfolio Theory 2008 (http en Wikipedia. Org)
[6]. Emiola O. K. S (2014) Application of Quadratic Programming in Portfolio Management Of Share Capital Investments
in Nigeria. A PhD Thesis of Atlantic International University. U S A
[7]. Etukudo I. A, Effanga E. O, Onwukwe C. E and Umoren M. U (2009) Application of portfolio selection model for
optimal allocation of investible funds in a portfolio
Mix Scientia African Faculty of science. University of
PortharcourtVol 8. No 1.96-102
[8]. Fama, E. F. & French, K. R. (2001). Diaappearing dividends changing firms characteristics or lower propensity to
pay? Journal of Financial Economics 60(1) 3-43
[9]. Fenn, G. W and Liang, N (2001). Corporate payout policy and managerial stock incentives. Journal of Financial
Economics, 45-72
Page 24

Dividend On Share As A Policy For Portfolio Selection of Bank Share (A Case Studies of Zenith Bank PLC, Guaranty Trust Bank PLC and First Bank Nigeria PLC.)

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Dividend On Share As A Policy For Portfolio Selection of Bank Share (A Case Studies of Zenith Bank PLC, Guaranty Trust Bank PLC and First Bank Nigeria PLC.)

Uploaded by

Copyright:

Available Formats

IPASJ International Journal of Computer Science (IIJCS)

Web Site: http://www.ipasj.org/IIJCS/IIJCS.htm

A Publisher for Research Motivation ........

Volume 3, Issue 5, May 2015