The Hindu Business Line : Payout tap will not run dry

The basket of S&P CNX 500 companies would have to shell out about Rs 960 crore more in cash towards dividend distribution tax (DDT) if they wish to maintain last year's dividend payments (assuming the equity base remains the same). Companies in the oil and gas space, information technology, FMCG and banking have been the top dividend payers in the list of CNX 500 companies last year.

Of the 500 companies, only 10 would have an additional outflow of over Rs 10 crore.

Companies in high-growth sectors such as engineering or infrastructure are likely to be least hurt by this proposal as many of them have a history of high retention of profits, with dividend payouts kept to the minimum.

Impact on oil, IT

Companies in the oil sector, known for liberal dividend payments, will witness a relatively stiff impact. ONGC, NTPC, Indian Oil Corporation and GAIL alone would have to pay a total of Rs 276 crore more of DDT to maintain their current rate of dividend.

Among the IT companies, those that offered high dividend payouts include Infosys, Wipro, TCS and HCL Technologies.

These companies alone would have an increased outgo of Rs 78 crore per annum if the current rate of dividends were to be maintained in future.

Will companies choose to trim their dividends or bite the bullet and absorb the additional tax?

For instance, if NTPC wishes to maintain its total outflow on dividend tax, then an investor may receive a dividend of 23 per cent as against 28 per cent.

Top index stocks such as ONGC, Infosys and Hindustan Lever are hot favourites with investors for their liberal dividend payout history, and these companies may choose to absorb the additional tax incidence, as they have significant cash coffers.

This is likely to help the companies take the additional burden without much of a dent in their kitty.

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