Kenya’s listed companies are paying more dividends, but the reasons behind the payouts differ

Kenya’s listed companies are returning more cash to shareholders, but the latest dividend decisions reveal very different calculations behind the payouts.

For some companies, larger distributions are being supported by stronger earnings, healthier balance sheets and lower financing costs. For others, dividends are rising faster than profits, suggesting that boards are becoming more willing to return accumulated capital to investors or increase the share of earnings allocated to shareholders.

The distinction is becoming increasingly important as the Nairobi Securities Exchange recovers from several years of weak valuations. Investors have benefited from rising share prices, but the companies generating the largest cash returns are also becoming increasingly important to the exchange’s overall performance.

The banking sector provides the clearest example. Nine listed lenders that had released first-half results recorded combined profit after tax of KSh144.9 billion, an increase of 16.9 percent from a year earlier. The improvement came as cheaper deposits, stronger lending and lower credit losses began to ease some of the pressure that had weighed on banks during the previous two years.

Average deposit costs have fallen faster than lending rates, allowing banks to rebuild some of the margin lost during the high-interest-rate period. At the same time, non-performing loans have started to decline across several large lenders, reducing the amount of earnings absorbed by provisions.

That combination is giving banks more room to distribute capital without necessarily weakening their balance sheets.

KCB illustrates the point. Its first-half assets increased 16.8 percent to KSh2.299 trillion, while customer deposits grew 15.1 percent and gross loans rose 14.2 percent. Gross non-performing loans fell by KSh17.3 billion, pushing the NPL ratio down from 18.7 percent to 15.1 percent.

The bank’s profit before tax grew 20.8 percent, considerably faster than operating income, while provisions declined 13.6 percent. Its stronger earnings and capital position supported a 50 percent increase in the interim dividend to KSh3 per share. KCB reported a core capital ratio of 18.6 percent against a regulatory minimum of 10.5 percent.

That is a materially different dividend story from one in which a company simply increases its payout while its underlying business deteriorates.

Equity Group is showing a similar combination of operating expansion and profitability. Its first-half deposits increased 21 percent to KSh1.59 trillion, while net loans grew 19 percent to KSh981 billion. Profit before tax rose 39 percent to KSh57.8 billion, with non-funded income increasing 36 percent and return on equity reaching 26.5 percent.

The numbers suggest that some of Kenya’s largest listed financial institutions are entering a period in which stronger earnings can support both balance-sheet expansion and shareholder distributions.

But not every dividend increase is being driven by earnings growth of the same magnitude.

Recent NSE disclosures show companies taking different approaches to shareholder returns. Some have raised dividends despite weaker profits, others have maintained payouts through periods of declining earnings, while several have increased distributions faster than their bottom line has grown.

Absa provides one of the clearest examples. Its interim dividend rose 150 percent to KSh0.50 per share even as the bank continued to operate under pressure from lower interest rates and tighter margins. Management has instead been focusing on building a cheaper deposit base, expanding lending and improving asset quality.

That does not necessarily make the dividend weaker. It does, however, mean investors need to look beyond the percentage increase in the payout and examine where the money is coming from.

The same distinction applies to NCBA. The bank increased its full-year dividend per share by 30 percent for 2025 as profit after tax rose 7 percent to KSh23.4 billion. Its operating income grew 17 percent, while the business continued to expand its digital lending operations.

A growing dividend can therefore reflect several things at once: stronger earnings, a higher payout ratio, accumulated capital, confidence in future cash generation or a combination of these factors.

This is particularly relevant for banks because they cannot distribute every shilling of profit. They need sufficient capital to absorb credit losses, meet regulatory requirements and finance growth. A higher dividend therefore says something about management’s assessment of how much capital the business needs as well as its view of shareholder expectations.

The current banking cycle is making that calculation easier for some lenders.

KCB’s capital ratios remain well above regulatory thresholds while its loan book is expanding. Equity has strengthened profitability while diversifying income beyond traditional interest revenue. NCBA has continued to grow earnings while investing heavily in digital banking. These developments provide a stronger foundation for shareholder distributions than the dividend figures alone would suggest.

The pattern is also visible outside banking.

EABL’s latest results provide one of the cleaner examples of earnings translating into shareholder returns. The brewer increased revenue 13 percent to KSh146 billion and profit after tax 49 percent to KSh18.2 billion. Debt fell by KSh4.8 billion, while the total dividend increased 59 percent to KSh12.70 per share.

That combination matters because debt reduction and lower financing costs can leave a company with more cash available for both investment and shareholder distributions.

The wider market is therefore developing a more complicated dividend picture than a simple ranking of companies by payout.

The strongest dividend stories currently combine rising earnings with balance-sheet improvement. Others involve management deliberately returning a greater proportion of existing earnings to shareholders. Investors looking only at the size of the dividend risk treating both situations as equivalent.

There is another layer to the change: ownership.

Foreign groups have increased their influence over some of the companies that generate the largest shareholder returns. Safaricom’s majority ownership by Vodacom has already begun to translate into changes at board level, with two Vodacom executives joining the Kenyan operator’s board after the South African group increased its effective stake to about 55 percent.

That development places capital allocation decisions within a broader shareholder structure. Safaricom remains a Kenyan-listed company with a large domestic investor base, but its largest shareholder now has considerably greater influence over the company’s governance and long-term capital decisions.

The same ownership question is emerging elsewhere in the banking sector as international financial groups pursue larger positions in Kenyan lenders.

It gives the dividend story an economic dimension beyond the stock market. The companies generating substantial shareholder returns are also among the country’s largest providers of credit, employers and corporate taxpayers. Who owns those companies influences where the income they generate ultimately accrues.

For investors, meanwhile, the recovery in dividends provides a reason to look more closely at the underlying businesses rather than treating payout size as a standalone measure of value.

A large dividend supported by expanding earnings and excess capital tells a different story from one financed by a higher payout ratio while profits are under pressure.

Kenya’s latest earnings cycle suggests both are happening at the same time.

The NSE’s improving valuations have brought investors back to large, liquid companies, but the more consequential development may be taking place inside the companies themselves. Lower funding costs, improving credit quality, stronger non-interest income and tighter balance-sheet management are giving several major businesses greater capacity to return cash to shareholders.

The question for investors is increasingly how durable those returns are, and what management teams are giving up, or preserving, to sustain them.

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