Influence of Financial Performance and Financial Leverage on Dividend Payout
International Journal of Accounting, Finance and Risk Management
Volume 5, Issue 3, September 2020, Pages: 167-173
Received: Aug. 19, 2020; Accepted: Sep. 4, 2020; Published: Sep. 16, 2020
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Authors
Solomon Munyoki Kathuo, Department of Economics and Finance, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Oluoch Oluoch, Department of Economics and Finance, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Agnes Njeru, Department of Economics and Finance, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
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Abstract
This study explored the influence of financial performance and financial leverage 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. Existing studies on the factors of dividend payout in Kenya were mainly used unidimensional variables and/or were limited in sectoral scope. The present study targeted all registered DTSSaccos in Kenya (n=179) over an eight-year period (2012-2019). Panel data modelling was used, which was a departure in methodology from previous studies. The effects of financial performance, financial leverage. Descriptive results showed that financial performance measured by ROE for for DT-saccos was below industry standards at 3%. 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 Financial leverage measured by Debt ratio had an inverse, significant effect on dividend payout. Between 2012-2019, the debt ratio of DT saccos averaged 195%, and this ratio was much higher than the comparable ratio for the banking industry, which was just 20% between 2012-2019. 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, Leverage, Debt Ratio
To cite this article
Solomon Munyoki Kathuo, Oluoch Oluoch, Agnes Njeru, Influence of Financial Performance and Financial Leverage on Dividend Payout, International Journal of Accounting, Finance and Risk Management. Vol. 5, No. 3, 2020, pp. 167-173. doi: 10.11648/j.ijafrm.20200503.16
Copyright
Copyright © 2020 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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