While March quarter results so far are in-line with the expectations of a flat to lower margins in the coming quarters, the dividend pay-out seems to have been affected. An FE study of 113 companies that announced dividends for the year ending March 2011 shows a decline in the dividend pay-out to its lowest in the last five years.
For FY11, dividend payout ratio fell to 18.7% as compared to 23.2% in the previous year. In FY07, the dividend payout was the highest at 25%. According to experts, in a high interest rate environment, a decline in dividend-payout may indicate a company’s preference to retain earnings and invest it in the business instead of borrowing from outside.
?Companies tend to utilise the retained earnings for their expansion plan, during a high interest rate phase. They may prefer using a portion of their earnings for funding their rising working capital requirements or purchase of fixed assets which can result into a decline in dividend pay-out,? says Kislay Kanth, Head of Research, Mape Securities.
For the sake of analysis, we considered (Dividend Per Share/Earnings Per Share) as the pay-out ratio for FY11 in absence of actual dividend amount available for all the companies that announced dividends for FY11. For the previous years, dividend amount as a % of adjusted net earnings were taken.
As many as 65 companies showed a decline in dividend pay-out as compared to the average pay-out of last four financial years while close to 22 companies reported a gain in dividend pay-out compared to the four year average.