Relationship between Return on Assets and Dividend Pay-out Decisions: Evidence from Selected Deposit-Taking SACCOs in Kenya

Abstract

This study examined the relationship between Return on Assets (ROA) and dividend payout decisions among deposit-taking Savings and Credit Cooperative Societies (SACCOs) in Kenya. The study adopted a descriptive and correlational research design to examine the relationship between Return on Assets (ROA) and dividend payout decisions among deposit-taking SACCOs in Kenya. The target population comprised all 176 SACCOs registered under the SACCO Societies Regulatory Authority (SASRA) as of December 2023, from which a representative sample of 122 was determined using Yamane’s formula at a 95% confidence level. Secondary data covering the period 2019–2023 were collected from audited financial statements, annual reports and SASRA publications, focusing on ROA and dividend payout ratios. Data analysis involved descriptive correlation and multiple regression analysis to determine the extent to which ROA explained variations in dividend decisions. Descriptive statistics revealed that SACCOs maintained relatively stable profitability, with average ROA at 2.39% while dividend payouts averaged 56.21% of total income. Correlation analysis showed a strong positive relationship (r = 0.72) between ROA and dividend payout ratio, indicating that higher profitability is associated with increased member returns. Regression analysis confirmed that ROA significantly influences dividend payout decisions (β = 0.432, p = 0.001), suggesting that efficient asset utilization enhances SACCOs’ ability to reward members. The findings support Dividend Relevance Theory and Signaling Theory, emphasizing profitability as a central determinant of dividend policy in cooperative institutions. The study concludes that ROA is key in shaping dividend payout decisions in Kenyan SACCOs and recommends strengthening asset management practices to sustain profitability and member satisfaction. Future research should explore the moderating effects of liquidity, leverage and regulatory requirements on the ROA-dividend relationship. 

Keywords:       Return on Assets (ROA), Dividend Payout Decision, Deposit-Taking SACCOs, Profitability, Cooperative Governance, Kenya