The Dividend Policy Issue and its Impact on the Risk in a Stock : A study of the relationship between the dividend policy and the volatility of the stock price on the Swedish market

Abstract: The question of paying out a dividend or not, is an issue all companies have to consider. The dividend policy in a company does not only affect the company itself, but also the shareholders. Several aspects have to be considered by the managers when suggesting if to pay out a dividend, and how large the amount should be. What if this decision could be simplified if it is proven that the size of the dividend affects the stock price volatility?This study intends to examine the relationship between the dividend policy of a company and the volatility of the stock price. Volatility is often seen as a measurement of risk, and if the relationship exist this suggests that the managers that decide over the dividend policy can reduce level of risk in the stock price by altering the dividend policy.The study will be conducted on the Swedish stock market, including all companies that pay out a dividend. The study period stretches from year 2000 to 2015. Different variables will be used in a regression to be able to determine the relationship between dividend policy and stock price volatility.The findings of this study suggest that if a company increases its dividend policy, increase the dividend and/or increase the payout ratio, the less volatile the stock price will be. This suggest that managers can reduce the risk of the stock by altering the dividend policy.