Approximately 10% of the firms have more than doubled their payout in 2019-20; the promoter group held a stake of over 60% in these companies.
The dividend payout for the Nifty 500 universe has risen to 42.5% in 2019-20 — the highest in at least seven years, data from Capitaline shows. While the top 500 companies distributed 34.9% of their earnings as dividends in 2018-19, the ratio for 2017-18 was higher at 38.5%. The five-year average through FY19 is 36.4%.
Unsurprisingly, the rise in dividend payout was seen in companies where the promoter holding is significantly high. Approximately 10% of the firms have more than doubled their payout in 2019-20; the promoter group held a stake of over 60% in these companies.
The reason for the high payout is that the dividend distribution tax (DDT) was abolished in the FY21 Budget. The rules have been amended such that the dividend income is now taxable in the hands of the receiver as per the tax rate applicable to their income slabs.
Earlier, the companies were taxed. As per the new taxation rule, an individual who earns more than Rs five crore of total income in a year will end up paying as much as 43% tax on dividend income against the earlier effective rate of 33% (DDT of 21% + additional 14% on the net dividend above Rs 10 lakh).
Of the 500 companies, 403 distributed a combined dividend of Rs 1.83 lakh crore for 2019-20. Interestingly, even as the total dividend distributed by these companies rose by 14.1%, their combined net profit camedown by 6% to Rs 4.3 lakh crore. While most companies advanced their dividend announcement to avoid paying extra tax following the change in the treatment of dividend tax there were many that have not only advanced it, but also enhanced the payout.
Tata Consultancy Services (TCS) distributed the highest amount of Rs 27,375 crore followed by Hindustan Zinc which paid out Rs 13,943 crore and ITC which distributed Rs 12,477 crore. While the dividend per share (DPS) of TCS increased to Rs 73 from Rs 30 a year ago, ITC paid Rs 10.15 per share against Rs 5.75 per piece.
With the change in dividend distribution tax, the dividend income is now taxable in the hands of investors as per the tax rate applicable to their income; earlier the companies were taxed.