Saccos

Understanding SACCO dividend payments

Understanding SACCO dividend payments

Savings and Credit Cooperative Organizations (SACCOs) in Kenya have become vital financial institutions for empowering members economically. One of the most significant benefits of SACCO membership is the annual dividend payment, which serves as a reward for investing in the SACCO through shares. Below we delves into how SACCO dividend payments work, their calculation, and factors influencing their distribution.

What Are SACCO Dividends?

SACCO dividends are a share of the surplus profits generated by a SACCO in a financial year. These profits are distributed to members based on their shareholding. Unlike interest earned from savings or deposits, dividends represent the return on the equity investment made by members in the SACCO.

How SACCO Dividends Are Calculated

The calculation of dividends typically depends on two key factors:

  1. Net Profit of the SACCO: After covering operational expenses, loan disbursements, and provisions for reserves, the remaining surplus is allocated for dividends.
  2. Member Shareholding: The amount of dividend each member receives is proportional to the number of shares they own in the SACCO.

For example, if a SACCO declares a dividend rate of 10% and a member holds shares worth Sh50,000, the dividend payout will be:
Dividend = Shareholding × Declared Rate
Dividend = Sh50,000 × 10% = Sh5,000

Factors Affecting Dividend Payment

Several factors influence the rate and timing of dividend payments:

  1. Financial Performance: A SACCO’s profitability directly impacts the dividend rate. Higher profits typically lead to higher dividend payouts.
  2. Member Participation: The more members save and borrow, the higher the interest income for the SACCO, leading to better dividends.
  3. Regulatory Requirements: SACCOs must adhere to laws set by the SACCO Societies Regulatory Authority (SASRA), including maintaining reserves, which can influence available funds for dividends.
  4. Operational Costs: High operating expenses may reduce the surplus available for dividend distribution.

Process of Dividend Payment

  1. Declaration: At the Annual General Meeting (AGM), the SACCO’s Board of Directors presents the proposed dividend rate to members for approval.
  2. Approval: Once members approve the proposal, the SACCO schedules the payment.
  3. Payment: Dividends are credited to members’ accounts or paid via other agreed-upon methods.

Tax Implications on Dividends

Dividends in Kenya are subject to withholding tax as stipulated by the Kenya Revenue Authority (KRA). For SACCO dividends, the withholding tax rate is usually 5%. Members receive their dividends net of tax.

For example, if a member earns a gross dividend of Sh10,000, the withholding tax is:
Tax = Gross Dividend × Tax Rate
Tax = Sh10,000 × 5% = Sh500
Net Dividend = Sh10,000 – Sh500 = Sh9,500

Maximizing SACCO Dividends

To maximize your earnings from SACCO dividends, consider the following strategies:

  1. Increase Shareholding: Buying more shares increases your entitlement to dividends.
  2. Choose a Profitable SACCO: Research SACCOs with a track record of high profitability and consistent dividend payments.
  3. Participate Actively: Borrowing and repaying loans promptly contributes to the SACCO’s income, indirectly boosting dividends.

 

Andrew Walyaula
Author: Andrew Walyaula

Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com

Andrew Walyaula

About Author

Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com

Leave a Reply

You may also like

Why dividends differ in SACCOs SACCO loan calculator: Simplifying loan planning for members: Reducing Balance Method
Saccos

SACCO loan calculator: Simplifying loan planning for members

When planning to take a loan from a Savings and Credit Cooperative (SACCO), understanding the financial implications is crucial. A
Benefits of using a SACCO loan calculator: Factors affecting dividend payment
Saccos

Benefits of using a SACCO loan calculator

When you decide to borrow money from a Savings and Credit Cooperative (SACCO), understanding your financial commitment is crucial. A
error: Content is protected !!
×