Despite earning a smaller profits in FY16 of Rs 3.6 lakh crore, India’s top corporates paid out dividends of Rs 1.7 lakh crore. In FY15, the same clutch of companies had earned profits of nearly Rs 4 lakh crore but paid out dividends of Rs 1.42 lakh crore. The rush to pay dividends stems from the budget proposal which requires dividends of over Rs 10 lakh to be taxed in the hands of the receiver. For a sample of 462 companies(from the BSE 500 universe), the dividend payout ratio in FY16 was 47% while in FY15 it was a much lower 36.2%. The dividend paid out in the last fiscal may have been even higher had it not been for the fact that a host of public sector undertakings (PSUs) , especially banks, reported losses during the year.
Power Finance Corporation and Hindustan Zinc announced special dividends during FY16. Power Finance paid investors a dividend of Rs 139 per share as compared to Rs 9.1 per share in FY15. Hindustan Zinc on the other hand paid investors Rs 47.4 more per share in FY16 as the company completed 50 years during the financial year, the company said in an analyst call post results.
Sector-wise, information technology companies including Tata Consultancy Services (TCS) and Infosys; public sector banks including State Bank of India and Union Bank of India paid much lower dividends in FY16 compared to FY15.
Although India commands higher valuations in terms of earnings multiples, the dividend payout ratio remains inferior compared to many emerging and developed markets. Markets like Brazil, Taiwan, Malaysia and Indonesia boast a payout ratio of between 50% to 93%. Experts believe that higher dividend payouts have proved attractive to investors looking for yield during a time of low interest rates.
The Securities and Exchange Board of India (SEBI) has proposed that the top 500 companies, based on market value, should announce their dividend distribution policy in their annual reports. This is meant to help investors to take informed decisions. Companies could spell out the circumstances under which shareholders can or cannot expect dividends, financial parameters that would be considered for dividend declaration, and the rationale of utilising retained earnings.