The Relationship Between Return on Equity and Dividend Payout Decisions of Selected Deposit-Taking SACCOs in Kenya
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Keywords
Return on equity, dividend payout, profitability, SACCOs, Kenya
Abstract
A deposit-taking savings and credit cooperative societies is a member-owned cooperative that provides financial services, including accepting deposits, offering savings accounts, and providing credit facilities, with the primary goal of serving its members’ financial needs rather than maximizing profits. When a SACCO generates profits, it chooses whether to retain those earnings for reinvestment in the corporate or distribute the same to shareholders as dividends. The biggest problem lies in the complexity of making dividend payout decisions that satisfy member expectations for returns while at the same time ensuring the SACCO’s financial stability and compliance with regulatory requirements. Therefore, this study determined the relationship between Return on Equity and dividend payout decision of deposit taking SACCOs in Kenya. The study was based on dividend relevance theory and employed correlational research design and descriptive research design. These Sacco’s are registered by SACCOS Societies Regulatory Authority (SASRA) and they are 176 distributed throughout the country. The study had a sample size of 122 DTS obtained through Yamane formula. The secondary data involved financial reports and audited accounts available at SASRA government publications. The study was analyzed using descriptive statistics, correlational analysis and multiple regression analysis. Correlation analysis revealed a strong positive association between return on equity (ROE) and dividend payout ratio, with a correlation coefficient of (r = 0.85, p<0.5). Regression results further confirmed this relationship, showing that ROE had a statistically significant positive effect on dividend payout decisions (β = 2.55, p = 0.001). This implies that SACCOs with higher equity profitability are more likely to increase dividend distributions, reinforcing the role of ROE as a key determinant of payout policy. The study recommends that SACCOs should adopt strategies that enhance member equity returns. This includes reinvesting retained earnings in high-yield ventures and ensuring that capital structures are balanced to avoid diluting member returns.
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Rency Cherono , Department of Finance and Accounting, School of Business, Koitalel Samoei University College (University of Nairobi Constituent College), P.O. Box 5-30307, Mosoriot, Kenya
Department of Finance and Accounting, School of Business, Koitalel Samoei University College (University of Nairobi Constituent College), P.O. Box 5-30307, Mosoriot, Kenya
Joab Ooko , Department of Finance and Accounting, School of Business, Koitalel Samoei University College (University of Nairobi Constituent College), P.O. Box 5-30307, Mosoriot, Kenya
Department of Finance and Accounting, School of Business, Koitalel Samoei University College (University of Nairobi Constituent College), P.O. Box 5-30307, Mosoriot, Kenya
Loice Koskei , Department of Finance and Accounting, School of Business, Koitalel Samoei University College (University of Nairobi Constituent College), P.O. Box 5-30307, Mosoriot, Kenya
Department of Finance and Accounting, School of Business, Koitalel Samoei University College (University of Nairobi Constituent College), P.O. Box 5-30307, Mosoriot, Kenya