Market-oriented small holder dairy production may offer opportunities for diversification from traditional export crops, particularly in light of expected rapid growth in milk consumption in the developing world. Higher-producing grade and crossbred dairy cows are a central component of efforts to promote intensification of dairy production in many developing regions, including Eastern Africa. Previous studies have identified potential positive impacts of more intensive dairying for small holder households, but few have controlled for other factors influencing the observed outcomes. This study uses reduced form censored regression models to examine the impacts of dairy cow ownership on selected outcomes for a sample of 184 households in coastal Kenya. The outcomes examined include household cash income, non-farm income, consumption of dairy products, time allocated to cattle-related tasks, number of labourers hired and total wage payments to hired labourers. The number of dairy cows owned has a large and statistically significant impact on household cash income; each cow owned increased income by 80% of the mean total income of non-adopting households. Non-farm income decreases with dairy cow ownership, indicating a substitution with alternative economic activities. Dairy cow ownership also increases consumption of dairy products by 0.6 litres per week, even though most of the increase in milk production is sold. The number of dairy cows has a significant effect on total labour for cattle-related tasks. However, in contrast to previous studies, labour allocation to cattle by household members is constant. The increase in labour required for dairy cows is met primarily by hired labourers; this is reflected in time spent by hired labourers in cattle-related tasks. However, the effects on the number of labourers hired and total payments are relatively modest, suggesting that hired labourers’ time is allocated differently when dairy cows are owned. The large positive impacts on income and limited impacts on household labour allocation suggest that intensification of small holder dairying can be beneficial as a development strategy in the region if disease and feed constraints are addressed.