Comments
Ashok Leyland, Bharat Electronics, Dr Reddy’s Labs, Wipro, HCL Technologies, Eicher Motors and Whirlpool are among 73 companies that proxy advisory Institutional Investor Advisory Services has identified as not paying adequate dividends.
Pass on the benefits In a research report released on Tuesday, IiAS said: “The IiAS’ study (based on FY15 financials) shows that at least 73 of the S&P BSE 500 companies can double the amount of dividends… India Inc is stockpiling cash and must return it to shareholders if it does not have productive use for it.”
The report also said companies must disclose a retention policy — how much money they want to retain and why — rather than a dividend policy, to provide investors clarity on the planned use of cash the business has generated.
A detailed analysis revealed that these 73 companies could easily double the dividend they paid in FY15, that is, pay out ₹42,600 crore instead of the ₹21,300 crore they actually paid out. Three companies — ISGEC Heavy Engineering, Bosch and Eicher Motors — can pay dividends of over ₹100 a share without any liquidity stress, the report found.
Bharat Electronics, Force Motors, HCL Technologies, Maruti Suzuki and Shree Cement can pay dividend between ₹50 and ₹100 a share.
Whirlpool’s bias IiAS also pointed out specifically the case of Whirlpool of India (Whirpool) which, despite being profitable, has not paid dividend in the past three years. IiAS estimated that the company has ₹200 crore in excess distributable cash. “Whirlpool’s cash accumulation must be seen in light of the fact that it pays out royalty to its parent Whirlpool Corp, USA, and that the parent company does pay dividend to its own shareholders,” the report said. “Whirlpool’s shareholders must raise this differential treatment with the company.”
Videocon Industries, Oracle Financial Services, Century Textiles, Blue Dart, Cairn India, GlaxoSmithKline Pharmaceuticals and Polaris Consulting and Services had the highest dividend payout ratios of FY15. Gujarat Pipavav Port, Housing Development and Infrastructure, Jaiprakash Power Ventures, JSW Holdings, Inox Leisure and TV18 Broadcast were among the companies that did not pay dividends in the past three years despite consistently reporting profits.
The report also recommended that markets should change the conversation around dividends. “Instead of dividend rate (dividend as a percent of face value), the focus must be on dividend payout ratio — how much of the profits generated for the year are distributed to shareholders. This will push boards to discuss retention policies and balance the need to hold cash vis-à-vis distribute it to shareholders.
“Distributing excess cash to shareholders on a regular basis helps companies demonstrate their confidence to continually generate earnings in future and show that the earnings are real. Higher dividend payouts increase shareholder interest in the stock and, to that extent, makes fund-raising easier…
“We strongly believe that companies should obtain shareholder approval to retain cash specifying the rationale for doing so, and pay out the remaining to shareholders as dividends. The excess cash belongs to all shareholders and is not for managements to keep,” it added.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.