India Inc on dividend drive

The financial health of India Inc may yet not be in a position to demonstrate any signs of recovery, companies seem to be in a haste to declare dividend for FY16.

The financial health of India Inc may yet not be in a position to demonstrate any signs of recovery, companies seem to be in a haste to declare dividend for FY16. The rush to announce dividend stems from the recent announcement in the Budget which will result into higher dividend distribution tax on bigger stakeholders.

Data compiled from Bloomberg show more than 150 firms have announced interim dividend since beginning of March 2016. Interestingly, promoters hold at least 60% of equity in more than half of these firms.

On Thursday, Reliance Industries, where promoters own close to 47% stake, said it will pay interim dividend of Rs 10.5 per share. This interim dividend is Rs 0.5 higher than the total dividend paid by the country’s biggest private refiner in FY15. Bajaj Auto’s FY16 interim dividend has already matched up its total dividend paid in FY15. If one compares announced interim dividends of these two companies with their earnings over the last nine months, the payout ratio appears higher than their respective historical averages. In case of RIL the payout proxy for FY16 stands at about 15% compared to five-year average of 13% whereas for Bajaj Auto the FY16 gauge at 51% is higher than its average outgo of 47%. As such, most of the prominent companies that have announced interim dividend in the last 10 days, maintain healthy dividend payout of more than 40% historically.

On February 29, finance minister had announced an additional 10% levy on resident investors- firms, HUFs, and individuals- whose divined income exceeds Rs 10 lakh during a fiscal. This levy is over and above the 20.47% tax that corporates pay as dividend distribution tax on dividend.

Notably, several PSUs and Indian arms of multinational companies have also announced interim dividends this month. Given that the majority promoter in both the cases – the government of India and MNCs – are not going to fall under the ambit of new DDT rule, their announcements seem routine corporate actions.

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