Liquidity, Profitability and the Dividends Payout Policy

The study of dividend policy has captured the attention of finance scholars since the middle of the last century. There is a literature gap as very few studies have been carried out in the UAE and no study investigated the determinants of dividend payout policy in the UAE banking sector. The objective of this study is to investigate the impact of liquidity and profitability on the dividend policy in the UAE banking sector, and to examine any kind of variations between Islamic and conventional banks prior and subsequent to the financial crisis. The study analyzes the data of 18 out of the 24 UAE national banks over the period 2005-2012. The dividend payout ratio is analyzed in relation to six liquidity and profitability ratios. The correlation analysis and regression analysis are conducted to analyze the data. The main finding is that the dividend payout ratio has a significant and positive correlation with liquidity but negative and insignificant correlation with profitability. There is a significant variation of the variables in Islamic banks but not significant with the period.