Academic journal article Journal of Financial Management & Analysis

Incidence of Unclaimed Dividends in Quoted Companies: The Nigerian Economy in Perspective

Academic journal article Journal of Financial Management & Analysis

Incidence of Unclaimed Dividends in Quoted Companies: The Nigerian Economy in Perspective

Article excerpt


Investors have among their major goals dividend payments; indeed in Nigeria as well as many other African countries, investors are dividend driven (Osaze1; Osamwonyi and Tafame2) - - Ross, et al,3 define dividends as distributions of earnings. Dividends can be in the form of cash (cash dividends) or in the form of shares (stock dividends or bonus shares) or stock repurchase when there is excess cash to be utilized. In extreme cases, distribution of dividend could be in the form of capital known as liquidating dividends. Paying cash dividend reduces the cash position of the firm and the opportunity for retained earnings; but with stock dividend, no cash leaves the firm, rather it increases the number of shares outstanding thereby reducing the value of each share. Thus dividend is a reward to the shareholder of a company for his investment in the company.

The term "unclaimed" when related to dividend refers to a situation where the declared dividends warrants sent to the various shareholders' addresses are returned for one reason or the other to the company. That is, a situation where dividends declared are not received by the rightful owners. The growth of unclaimed dividends in Nigeria has been phenomenal. As at the end of 1999, the figure had risen to about two billion Naira. For example as at 31 December, 2003, unclaimed dividends in Access Bank alone hit N15.4 million. There were 6,875 shareholders' dividends yet to be claimed in 2003. As at June 30th 2004, total number of unclaimed dividends owners listed for AIICO Insurance PIc was 8,184.

The problem of unclaimed dividends in the Nigerian capital market has persisted and attracted the concerns of all stakeholders. This huge amount of money due mostly to poor shareholders has been used over the years by the various companies. It raises the issue of how equitable it is for companies to utilize dividends owned by identifiable investors for the benefit of its shareholders including those who have been paid theirs. This can dampen investors' interest in capital market instruments. In recent years, the Nigerian securities and Exchange Commission has been challenging for the custodianship of these unclaimed dividends. The need to resolve this controversy is the justification for this study. The objectives are to identify the major reasons for the occurrence of the huge incidence of unclaimed dividends in Nigeria and to generate appropriate solutions.


Dividends are important to both investors and companies. The importance attached explains why the issue of unclaimed dividends is so vexing. Companies and shareholders are often on different sides of the divide. It is possible for many chief executive officers not to be interested in employing corporate earnings to pay dividends yet investors prefer dividend and thus will sell shares when dividend demand is ignored. The main objective of financial management is to maximize the wealth of the shareholders of companies, thus sustaining a good dividend policy. However, retained earnings can be used for expansion and growth. Osaze and Anao4 opined that, Nigerian investors buy shares to keep for the dividends they can earn; the price of common stocks has been influenced more markedly by the dividend rate than by reported earnings since market value in most cases depends primarily on the dividend rate. The dividend relevance theory has a robust tradition such as Lintner3, Gordon6 and Black and Scholes7. Miller and Modigliani8 argued that the value of a company does not necessarily increase when dividends are paid, rather such increase comes about because the payment of dividend gives indication to shareholders that the company performance is high and that such performance will be sustained.

There are two basic reasons for the payment of dividend by companies (see Jain and Kumar9; Vishwanath10). First, is the information or signaling effects of dividend payments. The payment of dividends sends signals to the investors in the market that the company is doing well and it is likely to continue so in the future. …

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