The estimation of a firm's stock price has been a subject of debate considering the various factors that cause its increase or decrease. Chief among the outstanding factors touted by most scholars is the amount of dividends declared by the firm to its stockholders. This paper aims at establishing if there exists such a direct relationship between a firm's dividends and its stock price with particular emphasis on the Malawi stock exchange. The study analyses secondary data sets of thirteen local companies listed on the Malawi Stock Exchange for the period 2008 to 2014 inclusive. Using the correlation analysis stock price as an independent variable, and dividends, retention ratio, profit after tax, earnings per share and return on equity, as dependent variables, over the seven years, the study shows a strong positive association between stock price The study therefore establishes that on the Malawi Stock Exchange (MSE), there is a strong positive relationship between a firm's dividends and its stock price on the stock market. The study further finds that stock price is an outcome of a number of factors, dividends being one of them and having a very significant contribution. The findings in this study will help investors, both potential and existing; as well as managers of listed companies, who are the stewards, to understand and appreciate the impact of dividend declaration or absence of it, on the psychology of stockholders which later affects the respective company's stock price on the stock exchange.