Pension funds ownership and dividend payout: Evidence from UK firms

This study examines the relationship between dividend and pension funds ownership using a sample of non-financial firms listed on the London Stock Exchange for the period of 1997 to 2008. The study questions whether pension funds are attracted to firms with high dividend. Based on UK evidence, the study finds that whilst higher dividend payout does not appear to influence pension funds investment, a policy of stable increases in dividend for five consecutive years is significantly related to pension fund ownership.The result implies that whilst pension funds may not require dividend payout for their investment purpose, they do expect stable increases in dividend if a firm does pay a dividend and are likely to increase their ownership when firms begin to follow a policy of stable increases in dividend payout.Therefore, the study suggests that pension funds are merely recipients of managerial decision making and react positively to a policy of stable increases in dividend. Overall, the study provides insights into potential explanations for the role of dividend policy in attracting pension fund investors, and for the relationship between pension funds and dividend payouts in UK