Tough times call for prudent measures. A declining profitability has forced promoters of a number of companies to adopt a conservative approach when it comes to dividend payout.
Out of the 975 companies that have thus far recommended / announced a dividend for the fiscal 2011-12 (FY12), as many as 592 firms trimmed the outgo (in absolute terms). Of these 592 companies, 226 have reduced their rate of dividend, while 360 companies held it steady at the previous year’s rate and 6 others skipped the payout.
Given the economic headwinds, most of the companies are finding the going tough due to the rising input costs that are putting pressure on margins and the overall profitability. As a result, most companies now prefer to hold more cash and slash dividend payouts.
| Companies | Dividend per share (in Rs) | |
The aggregate net profit of these 592 companies declined 13 per cent, data suggests, while the remaining 383 companies that increased dividend payout have reported an average 14 per cent growth in net profit for the fiscal 2012.
“Many companies retaining a part of their profits for strengthen their financial position. The income may be conserved for meeting the increased requirements of working capital or of future expansion,” says an analyst from a local brokerage.
Track record
This trend is also visible in companies that have been good dividend plays till now. Hero MotoCorp, Infosys and Tata Motors are a few companies that have cut the dividend rate. For instance, Hero MotoCorp has slashed the payout by more than 50 per cent to Rs 899 crore for FY12 (above Rs 2,000 crore in past two previous fiscals). It, however, has proposed to invest Rs 2,575 crore in setting up two manufacturing units and one R&D unit.
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On the other hand, Tech Mahindra, Godrej Industries and Exide managed to maintain it at the previous year’s pace. Worst hit have been the shareholders in realty and infrastructure companies such as HCC, Orbit Corp and Ansal Properties that have not paid / recommended a dividend due lower profit growth.
Silver lining
The average dividend payout ratio, or the dividend paid as a percentage of profit, has increased to 26.9 per cent in FY12 from 24.8 per cent in FY11, thanks to hefty dividend payouts by the state–owned companies. A total of 975 companies paid out a dividend of Rs 92,813 crore for FY12 against Rs 82,592 crore in FY11.
Twenty-nine public sector undertakings (PSU) including banks, which accounts 44 per cent of total dividend payout, have recommended a dividend of Rs 40,509 crore for FY12, higher by Rs 5,393 crore, higher year-on-year basis.
“A dip in profitability has reduced the dividend payouts in the case of several companies. However, in the case of PSUs, the dividend payout is still higher since it is one of the key revenue source for the government,” says Jagannadham Thunuguntla, Strategist and Head of Research, SMC Global Securities.
Sectorally, the financial sector is on top of the dividend payout chart with Rs 18,961 crore – accounting for 20 per cent of the total dividend payout. It is followed by information technology, crude oil and natural gas, mining and mineral metals and power generation sectors, which have proposed dividend payout of more than Rs 5,000 crore each.
Coal India, Glenmark Pharmaceuticals, Ingersoll-Rand, Navin Fluorine International, Emami, Manappuram Finance and Hindustan Zinc have recommended more than double dividend they had paid in previous year.