The Hindu Business Line : IT majors hike dividends, but reduce payout

But did you know that the top-tier companies are today paying out a lower proportion of their net-profits as dividends, compared to a couple of years ago?

Payout ratios have declined as profits expanded sharply for these players. Dividend payout ratios which ranged between 22.4 per cent and 84 per cent in 2005-06, fell to 13.9 - 62 per cent in the latest financial year.

A lower payout leaves headroom for IT companies to increase dividend payout in the future.

But the current difficult macro-environment suggests that companies may prefer to keep their payout ratios low and sit on cash or keep it liquid to fund any acquisitions in the future. That would also help companies fund their expansion plans, for instance, transitioning from software technology parks to special economic zones, from internal accruals, without using borrowings or resorting to external resources.

Of the five top tier players, Satyam Computer, Infosys, HCL Technologies and Wipro have seen much lower pay-out ratios in 2007-08 compared to two years ago. However, Infosys announced a 600-per cent special dividend in 2006 to commemorate its 25th anniversary. TCS is the only top tier IT company to have seen an increasing pay-out ratio in this period, its pay-out ratio up from 22.4 per cent to 27.3 per cent.

HCL Technologies continues to have the highest pay-out ratio (62.7 per cent). Incidentally, both these companies have very high promoter holdings.

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