What are Dividends?
Dividends are payments companies make to shareholders from their profits. When you own shares, you own part of the company—dividends are your share of profits.
Simple analogy: You and friends start a business. At year-end, after paying expenses, there’s KES 100,000 profit. You own 10%, so you get KES 10,000. That’s essentially a dividend.
Types of Dividends
Cash Dividends
Most common type—company pays money directly to your bank account.
Example: Company declares KES 2.50 dividend per share. You own 1,000 shares. You receive KES 2,500.
Payment: Usually within 30-60 days after Annual General Meeting (AGM).
Bonus Shares (Stock Dividends)
Free additional shares instead of cash.
Example: Company declares “1-for-10 bonus.” You own 100 shares, receive 10 free bonus shares. Now you own 110 shares.
Value: Your total value stays same (more shares, but price adjusts down), but long-term you own more of the company.
Special Dividends
One-time payment when company has exceptional profits or sells an asset.
Example: Company sells a subsidiary, declares special dividend of KES 5 per share on top of regular KES 1 dividend.
Rare but nice surprise for shareholders.
How Dividends Work: Key Dates
1. Declaration Date
When: Company announces dividend at AGM or board meeting.
Example: “Equity Bank declares KES 3.50 final dividend per share.”
Public announcement: Via NSE, news media.
2. Ex-Dividend Date
Most important date for buyers!
Rule: Must own shares BEFORE this date to receive dividend.
Example: Ex-div date is Friday, May 10.
- Buy shares by Tuesday, May 7 (T+3 = Friday) → You get dividend ✓
- Buy on Wednesday or later → No dividend ✗
Why 3 days before? Settlement takes T+3. You must be registered owner by ex-div date.
3. Record Date
Date CDSC checks who owns shares.
Usually same as ex-dividend date.
Only registered shareholders receive dividend.
4. Payment Date
When money hits your bank account.
Usually 30-60 days after AGM.
Paid to bank account registered with CDSC.
Example Timeline
- March 20: AGM, dividend declared (KES 2 per share)
- May 8: Ex-dividend date (must own before this)
- May 8: Record date (CDSC checks ownership)
- June 15: Payment date (money in your account)
Dividend Yield: Measuring Returns
What is Dividend Yield?
Formula: (Annual dividend per share ÷ Share price) × 100
Example:
- Share price: KES 50
- Annual dividend: KES 4
- Yield: (4 ÷ 50) × 100 = 8%
Meaning: You earn 8% per year from dividends alone (excluding share price gains).
Comparing Yields
Money market fund: 12-14% Treasury bond: 15-17% Bank savings: 3-7% High-dividend stock: 7-12%
Note: Stocks also offer potential capital gains (price appreciation), bonds/savings don’t.
High Yield = Good Investment?
Not always!
High yield can mean:
- Strong, profitable company (good!)
- Share price dropped due to problems (bad!)
- Unsustainable dividend (will be cut soon)
Check: Company fundamentals, not just yield.
Top Dividend-Paying Stocks on NSE
Banking Sector
1. Equity Bank (EQTY)
- Yield: ~8-10%
- History: Consistent dividend payer
- Frequency: Annual
2. KCB Group (KCB)
- Yield: ~6-8%
- History: Reliable
- Frequency: Annual, sometimes interim
3. Co-operative Bank (COOP)
- Yield: ~7-9%
- History: Stable
- Frequency: Annual
Telecommunications
Safaricom (SCOM)
- Yield: ~5-7%
- History: Consistent, growing dividends
- Frequency: Usually twice per year (interim + final)
- Special: Sometimes special dividends
Manufacturing & Consumer Goods
East African Breweries (EABL)
- Yield: ~4-6%
- History: Long track record (decades)
- Frequency: Annual
BAT Kenya (BAT)
- Yield: ~6-10%
- History: Very high dividends historically
- Note: Tobacco sector declining
Insurance
Jubilee Holdings (JBIC)
- Yield: ~5-7%
- History: Consistent
- Frequency: Annual
Britam (BRIT)
- Yield: ~3-5%
- History: Varies
- Frequency: Annual when declared
Note: Yields change as stock prices move. Check current prices and recent dividend declarations.
Building Dividend Income
Strategy 1: Dividend Growth Investing
Focus: Companies that consistently increase dividends year after year.
Examples: Safaricom, Equity Bank.
Advantage: Income grows over time, compounding effect.
Time horizon: 10-20+ years
Example:
- Year 1: Buy 1,000 shares at KES 20, dividend KES 1.50 → Income: KES 1,500
- Year 5: Dividend grown to KES 2.50 → Income: KES 2,500 (same shares!)
- Year 10: Dividend KES 4.00 → Income: KES 4,000
- Plus: Share price likely higher too
Strategy 2: High-Yield Dividend Investing
Focus: Companies with highest current dividend yields.
Advantage: Immediate high income.
Risk: High yields sometimes unsustainable; company may cut dividend.
Best for: Investors needing income now (retirees).
Strategy 3: Dividend Reinvestment
Method: Use dividend payments to buy more shares.
Power: Compound growth—more shares = more dividends = even more shares!
Example:
- Own 1,000 shares, receive KES 3,000 dividend
- Buy 50 more shares with dividend (if shares cost KES 60)
- Next year: 1,050 shares earning dividends
- Repeat annually
Long-term effect: Exponential growth.
Strategy 4: Diversified Dividend Portfolio
Spread across sectors:
- 30% Banking (Equity, KCB, Co-op)
- 20% Telecoms (Safaricom)
- 20% Manufacturing (EABL, Unga)
- 15% Insurance (Jubilee, Britam)
- 15% Other (diversified)
Advantage: If one sector struggles, others compensate.
Calculating Your Dividend Income
Example Portfolio
Investment: KES 500,000 across dividend stocks
| Stock | Amount | Shares | Annual Dividend | Your Income |
|---|---|---|---|---|
| Equity Bank | KES 150,000 | 3,000 @ KES 50 | KES 4/share | KES 12,000 |
| Safaricom | KES 100,000 | 5,000 @ KES 20 | KES 1.20/share | KES 6,000 |
| EABL | KES 100,000 | 400 @ KES 250 | KES 11/share | KES 4,400 |
| KCB | KES 100,000 | 2,500 @ KES 40 | KES 2.50/share | KES 6,250 |
| Co-op Bank | KES 50,000 | 3,800 @ KES 13 | KES 1/share | KES 3,800 |
Total Annual Dividend Income: KES 32,450
Dividend Yield on Portfolio: 32,450 ÷ 500,000 = ~6.5%
Plus: Potential capital gains if share prices rise.
Tax on Dividends
Withholding Tax
Rate: 5% (for residents)
Deducted automatically before payment reaches you.
Example:
- Declared dividend: KES 2.00 per share
- Tax (5%): KES 0.10
- You receive: KES 1.90 per share
No further action needed—already taxed.
Non-Residents
Rate: 10% (for non-resident individuals)
Still deducted at source.
Risks and Considerations
Dividend Cuts
Companies can reduce or eliminate dividends if profits drop.
Recent examples: Some banks cut dividends during COVID-19, some after economic downturns.
Protection: Diversify, choose financially healthy companies.
Share Price Drops
If share price falls 20%, but you earn 8% dividend, you’re still down 12%.
Total return = Capital gains (or losses) + Dividends
Example:
- Buy at KES 100
- One year later: KES 90 (down 10%)
- Received KES 8 dividend (8%)
- Total return: -10% + 8% = -2%
Lesson: Dividend yield alone doesn’t guarantee profit.
Opportunity Cost
If you focus only on dividends (6-10% yield), you might miss growth stocks that don’t pay dividends but appreciate 20-30% annually.
Balance: Mix dividend and growth stocks.
Inflation
If inflation is 7% and your dividend yield is 6%, you’re losing purchasing power.
Solution: Choose dividend-growth stocks or mix with growth investments.
When Companies Don’t Pay Dividends
Growth Companies
Some companies reinvest all profits back into business instead of paying dividends.
Example: Young tech companies, expanding firms.
For investors: Benefit from capital gains (share price growth) instead of income.
Not bad—just different strategy.
Struggling Companies
If company doesn’t pay dividend due to losses, that’s a red flag.
Check: Company financials, news, outlook.
By Choice
Sometimes profitable companies choose not to pay dividends to save cash for opportunities (acquisitions, expansion).
Not necessarily bad, but check why.
Maximizing Dividend Income
1. Reinvest Dividends Early Years
When you don’t need income, reinvest to compound growth.
2. Increase Holdings Regularly
Add money monthly/quarterly to buy more shares → more dividends.
3. Focus on Dividend Aristocrats
Companies with 10+ years of consistent/growing dividends.
4. Monitor Ex-Dividend Dates
Plan purchases to qualify for upcoming dividends.
5. Diversify Across Sectors
Different sectors pay dividends at different times → steady income flow.
6. Hold Long-Term
Short-term trading triggers capital gains tax and broker fees—eats into returns.
7. Check Company Health Regularly
Review annual reports, ensure dividend is sustainable.
Dividend vs Growth Stocks
Dividend Stocks
Pros:
- Regular income
- Less volatile (usually)
- Mature, stable companies
- Good for retirees or income seekers
Cons:
- Lower capital appreciation
- Subject to cuts
- May underperform in bull markets
Examples: Banks, utilities, consumer goods.
Growth Stocks
Pros:
- Higher capital gains potential
- Reinvest profits for faster expansion
- Better in high-growth industries
Cons:
- No/low income
- More volatile
- Risk if growth doesn’t materialize
Examples: Tech startups, expanding companies.
Your Choice Depends On:
- Age: Young = growth; Older = dividends
- Income needs: Need cash now = dividends
- Risk tolerance: Conservative = dividends; Aggressive = growth
- Time horizon: Long-term = can do both
Best strategy for most: Mix of both.
Checklist: Dividend Investing
✅ Understand ex-dividend date (must own T+3 before) ✅ Know payment goes to bank registered with CDSC ✅ Calculate dividend yield (dividend ÷ price × 100) ✅ Check company dividend history (consistent?) ✅ Diversify across sectors (don’t rely on one company) ✅ Plan: Reinvest dividends or use as income? ✅ Monitor company health (profits, cash flow) ✅ Track ex-dividend dates for stocks I own ✅ Keep records for tax purposes (already taxed at 5%) ✅ Review portfolio annually (dividends still sustainable?)
Common Mistakes
- Chasing highest yield without checking company health
- Buying just before ex-div date and selling after (price usually drops by dividend amount—no free lunch!)
- Forgetting to update bank details with CDSC (dividend payment fails)
- Ignoring share price, focusing only on dividends (total return matters)
- Not reinvesting when young (missing compound growth)
- Panicking when dividend cut (sometimes temporary, assess company outlook)
- Over-concentrating in one high-dividend stock (risk!)
Next Steps
- List 5 dividend-paying stocks to research (start with banks, Safaricom, EABL)
- Check their dividend history (NSE website, company annual reports)
- Calculate potential income based on investment amount
- Open/fund CDSC and broker accounts if not done
- Buy first dividend stocks (even small amount to start)
- Mark ex-dividend dates on calendar
- Set up bank account with CDSC (for payments)
- Decide: Reinvest or take as income?
- Track dividends received (simple spreadsheet)
- Review annually: Are companies still healthy? Dividends growing?
Dividend investing is a proven path to building passive income and long-term wealth. Start with quality companies, reinvest early, stay patient, and watch your dividend income grow year after year. Every successful dividend investor started with their first share—make yours today!