Which Is The Better Determinant For Dividends In The Kuala Lumpur Composite Index-Profitability Or Cash-Flow?

Investors buy stocks to enhance wealth through gains of portfolio capital or dividend income. Where investors grow their wealth from high dividend-yield stocks, it is important for them to understand the determinants of dividend payouts reflecting a company's financial standing, stream of income and ability to maintain share prices. It is the objective of this paper to identify the determinant for dividends payouts of companies with large market capitalisation in the Kuala Lumpur Composite Index (KLCI); Profitability or Cash-flow, alongside Size, Leverage/Debt-to-Equity, Variations-in-Earnings, Expensiveness of the Stock/Market-to-Book-Value and Growth of Sales/Revenues. The 29 largest market capitalised firms are taken as the samples with data from 2007 to 2016. Results from the Panel Data Analysis reveal that Profitability is the better determinant than Cash-flow for dividend payouts, indicating the domination of the Signalling Theory rather than the Agency Cost Theory. Surprisingly, Expensiveness of Stocks/Market-to-Book ratio plays an influential role showing the presence of Catering Theory, while Size, Growth and Variations-in-Earnings are weak determinants. The results from a Robustness Test undertaken reconfirms the former findings.