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
Highlights
The financial crisis of 2007 and 2008 marked the starting point for a domino effect affecting the global economy
The objective of the study was to examine the effects of financial performance, firm size, financial leverage and board independence on a dividend payout ratio of firms listed at the Nigerian stock exchange market
Return On Equity (ROE) according to Fahmi (2015) is a ratio that sees the extent to which investments that have been invested are able to provide a return on profits as expected
Summary
The financial crisis of 2007 and 2008 marked the starting point for a domino effect affecting the global economy. Key among them was the adjustment of dividend payouts to shareholders that was believed to be a shock absorber. The management of a firm will try to keep a stable and growing dividend and they are not eager to decrease the dividends paid since this is generally interpreted as a negative signal. During the crisis, the trend of stable dividends was abandoned and some companies drastically decreased their dividend payouts while others at the same time increased the dividends. Among the companies that decreased the dividend payouts to the shareholders in the United State of America stock markets increased from 44 in 2007 to more than 500 in 2009 and those that increased dividend payout decreased from 1.900 in 2007 to approximately 700 in 2009 in the same period (Morgan, 2011)
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