How are Sacco Dividends Calculated? [2022]

How are Sacco Dividends Calculated? [2022]

In Saccos, dividends refer to the money you get regularly out of profits accrued annually. Payments may be issued monthly, quarterly, mid-year, or yearly in line with policies governing the Sacco. Though, many Saccos pay dividends to members annually. That is during or before the Annual General Meeting (AGM).

Dividends motivate Sacco members to save and invest money. Thus every member is trying their best to save more money to get the most dividends. More savings attract higher dividends.

You are about to see how the dividends are arrived at through different methods. Before you start the calculations ensure you have a list of all Sacco members plus their yearly contributions. And total current profit and losses made by the Sacco.

1. Flat Rate Method

The first simple method you can apply in calculating dividends is the flat rate method. It is straightforward. Just consider two things—each member’s total end-year shares in a Sacco and total profit to be given out as a dividend to Sacco members.

That is summarized in a single formula as;

Dividends = Individual member shares / Total member shares * Dividend amount

Example:

XYZ Sacco has realized that the total amount of dividend they should give to members stands at Ksh.200,000. All members in XYZ Sacco hold a total amount of  Kshs.4,000,000 by the end of 2021. How can you know the number of shares that should be awarded to John Mwangi who had Kshs.75,000 at the close of the year?

The calculation is simple, you just input the figures into the formula above. And that should be,

Dividend = 75,000 / 4,000,000 * 200,000

Dividend = Kshs3750

Finally, you can note that Mwangi went to the bank smiling.

This method is straightforward and simple to understand by all Sacco members. However, it looks unfair as some members can opt not to save at the beginning of the year because they will be still entitled to dividends regardless of the time they started saving. It also consumes a lot of profit in the Sacco since even members who started saving late in the year claim the same dividends as those who started saving early.

2. Pro-Rata-Method

The second method is called the pro-rata method.  It is a bit fair compared to the flat rate method as it tends to distribute dividends proportionately. It allows monthly allocation of interests to members. It, therefore, calls for converting all annual dividend rates to monthly.

Take an example of RQ Sacco and say they have total shares of Kshs20,000,000 at the end of their financial year. And, they managed to declare shares amounting to Kshs.500,000 when the year ended.

From the figures, Sacco may decide to come up with a constant figure or rate at which they will be issuing the dividends. It can be worked out as:

Dividend rate = 500, 000 / 20,000,000 * 100

You will get a constant percentage rate of 2.5%

To get the monthly rate, you will convert the rate of 2.5% to monthly by dividing 2.5% by 12 months to get a monthly rate of 0.21%. It means that each Sacco member will get dividends at a rate of 0.21% per month.

You can now go-ahead to get monthly dividends by taking the closing amount at the end of each every month and multiplying it by 0.21%. Do the calculation of every month and sum them up at the end of the year to get the annual dividend.

Advantages of Pro-rata Method

The method is pretty fair as it rewards members depending on when they started saving. Those who started saving early are entitled to get more dividends than their counterparts who started late.

Another advantage is, Sacco won’t lose money when awarding dividends to members. The method factors in expenses like transaction charges. And if some members decide to redeem their shares to cover late payments is also reflected when the pro-rata method is used.

In Conclusion

Both methods are useful and you can employ any depending on what is preferable for your Sacco. Though each of them requires each member to have accurate statements, you can acquire software that can help you simplify the work.



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