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It is raining dividends!

R. Yegya Narayanan
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D. Balasundaram, former President, The Indian Chamber of Commerce and Industry, Coimbatore. File Photo.
S. Siva Saravanan D. Balasundaram, former President, The Indian Chamber of Commerce and Industry, Coimbatore. File Photo.

Indian corporates seem to be raining dividends on their shareholders (and on themselves/promoters too!) since the beginning of the year by announcing interim dividends.

What was probably started by the IT companies, that came out with quarterly dividend payouts emulating the foreign companies (may be as they have a large number of FII investors), has now caught up with other companies also.

The Corporate Action page of the BSE shows that close to 45 companies have fixed as the ex-dividend date, the period from Jan 1, 2013 till Feb 8, 2013 for the payment of interim dividend.

While many pay smaller amounts, some had announced fairly high dividends. Oil India with an Rs 11/share, Bajaj Corporation (Rs 6.50), Persistent Systems (Rs 6), Neelamalai Agro (Rs 20), Torrent Pharma (Rs 6), EID Parry (Rs 6), L.G.Balakrishnan & Bros (Rs 5.50), Thirumalai Chem (Rs 5) and REC (Rs 6.75) were some of the companies to fix dates as the ex-dividend date.

The dividends received by the investors are tax-free was their biggest benefit since the companies pay the Dividend Distribution Tax (DDT). They also ensure some additional cash flow to the investors.

Explaining the impact, D. Balasundaram, former President, Coimbatore Stock Exchange and founder of Coimbatore Capital Ltd (CCL), said this was not of any special significance for the companies. But for the investors this came as a boon.

He said with the budget just weeks away, there was a possibility that companies might want to beat the impact of any change in the IT rules governing dividend payment. But this may not have a significant impact on retail investors whose shareholdings were small and hence the payout received would not be too high.

For the companies, the ease of dividend payments also mattered. With most of the stocks held in demat mode and linked to bank accounts, it was easier for companies to transfer directly to the bank accounts through Electronic Clearing Service (ECS).

Balasundaram said another advantage was that this did not require shareholders’ approval. Normally companies distribute dividends after shareholders’ approval at the AGM that will be held weeks or months after their financial year closure. But interim dividend payments need only board approvals. This also gave the feeling to the shareholders that the ‘company is doing well and the accounts are proper’.

He said that with the stock prices ruling high, the dividend yield in a good number of companies would not exceed 2-3 per cent.

(This article was published on February 8, 2013)
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