Influence of Profitability on Dividend Pay-out among Deposit-Taking Saccos in Kenya

Abstract

This study explored the influence of profitability on Deposit-Taking Saccos in Kenya. The study was motivated by inconsistency in the ability of Saccos to live up to their promise of paying dividends to members consistently. Many of them pay dividends from unforeseen profits and/or while highly leveraged. These unhealthy dividend practices leave Saccos unable to pay dividends in the long term sustainably, besides exposing them to insolvency. A census study was conducted involving 179 DT Saccos. This study used a cross sectional design to obtain data from all registered DT Saccos in Kenya (n=179) over an eight-year period (2012-2019). Panel data modelling was used. The findings showed that firms were experiencing declining profits during the study period. During the panel period, Saccos failed to improve their ability to generate resources from equity yet, they sustained a high dividend payout. To maintain their dividend payout, the DT-saccos borrowed funds to pay dividends The findings deepen our understanding of the interplay of factors influencing dividend payout in DT-Saccos in Kenya. Small saccos have higher dividend payout compared to large ones. Indeed, small saccos use dividends as a business strategy to retain and attract new members, thereby augment their capital.

Keywords: Saccos, Dividends, Performance, dividend payout, Investment opportunity set

DOI: 10.7176/IKM/11-4-10

Publication date:September 30^th 2021