Dividend payout ratio inferior in India

By: | Published: May 21, 2016 6:06 AM

Although India commands higher valuations in terms of earnings multiples, it has an inferior dividend payout ratio compared to many emerging and developed markets.

Although India commands higher valuations in terms of earnings multiples, it has an inferior dividend payout ratio compared to many emerging and developed markets.

Data compiled by FE shows that India’s top companies( BSE 30 as well as BSE500), distributed close to 30% of their 2015 profits as dividends while some of the emerging market indices from Brazil. Taiwan, Malaysia and Indonesia boasted payout ratios of anywhere between 93% and 47%.

Among emerging markets, the Sensex commands the highest valuation, as the forward price to earnings (P/E) ratio stands at 15.6 times, compared with 11.9 for Bovespa and 12.5 for Taiwan.

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 dividends declaration, and the rationale of utilizing retained earnings.

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Typically, MNCs and some professionally run firms fromthe IT , FMCG and auto sectors are more generous when it comes to paying dividends.

Of the top 500 companies – entertainment firms such as Inox Leisure, Eros International Media, Dish TV declared nil dividends despite posting profits in FY15.

The country’s second largest company in terms of market cap, Reliance Industries, which boasts highest cash reserves for any Indian company, in the last five years, has on an average distributed 13% of its earnings as dividends.

In contrast, Infosys and TCS with high cash reserves on their books of the order of Rs 32,772 cr and Rs 29,202 crore, respectively, boast an average pay out of 37% and 49% in that order.

RIL’S cash & equivalents as of March 2016 stood at Rs 86,033 crore.

Even pharmaceutical firms such as Cipla, Dr Reddy’s Labs, Sun Pharma had payout ratio of 14% to 17% during the same period.

While distributing a portion of dividend among share holders is mandatory in countries such as Brazil, Chile, Venezuela and Columbia many Indian firms have managed to skip the pay out either to strengthen balance sheets or to re-invest in the business itself.

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