Investment opportunities, free cash flow, and dividend payout among consistent dividend payers: Evidence from Indonesia's energy sector

Abstract

The energy sector is a capital-intensive and cyclical industry in which firms face a persistent tension between funding expansion and maintaining dividend payments to preserve investor confidence, yet most prior evidence on the determinants of dividend policy has been drawn from property, real estate, banking, or general non-financial samples rather than from energy firms specifically, and reported findings on these determinants remain inconsistent. This study addresses that gap by examining the effects of the Investment Opportunity Set (IOS), Free Cash Flow (FCF), and Asset Growth on dividend policy among energy-sector companies listed on the Indonesia Stock Exchange (IDX) during the 2020–2024 period. Dividend policy is measured using the Dividend Payout Ratio (DPR). Using purposive sampling, a balanced panel of 13 companies (65 firm-year observations) was analysed through panel-data regression; based on the Chow and Hausman tests, the Fixed Effect Model was selected. The results show that, partially, IOS, FCF, and Asset Growth each have no significant effect on dividend policy. Jointly, the three variables explain only a modest share of the variation in dividend policy (Adjusted R² = 16.23%), indicating that dividend policy in the energy sector is shaped mainly by factors outside the model, such as profitability, leverage, firm size, and liquidity. These findings suggest that energy-sector firms tend to maintain stable dividend payouts to preserve investor confidence rather than adjusting dividends in response to period-specific investment opportunities, free cash flow, or asset growth, and they offer practical implications for management and investors regarding the limited explanatory power of these three conventional determinants in this sector.