Investors set to focus attention on dividend payout by public sector units

Dividend payouts by public sector companies would continue to attract investors with at least three Government-owned companies planning to announce dividend early next week. The board of directors of NMDC and BHEL will meet on February 10 to consider interim dividend while GAIL will announce dividend on Thursday.

According to market participants, a number of mutual funds have already seen accumulating select PSU stocks to benefit from dividend payouts as well as due to attractive valuation.

Last month, the Government instructed all State-owned banks and PSU companies to pay interim dividends depending on the strength of their balance sheet. Coal India declared a record dividend of ₹29 a share, helping the Government to mop up ₹18,300 crore. Pankaj Murarka, Head — Equity, Axis Mutual Fund, said the dividend payout would not greatlyimpact the future growth of these companies as most of these PSUs are sitting on huge cash in excess of what is required to fulfil their capital expenditure for the next five years.

“A good corporate governance practice calls for distributing excess cash on the books to investors. Cash lying idle can give a return of just 7-8 per cent whileattracting tax of 30 per cent,” he said.

The Government will benefit more from the dividend payout by banks as it has increased stake in most banks through preferential allotment.

Union Bank of India, which received an equity investment of ₹500 crore from the Government to increase its holding to 60.13 per cent from 57.89 per cent in the December quarter, paid an interim dividend of ₹2.7 a share in January.

Most PSU companies are trading at huge discount to their intrinsic value. Investors can select the best among them depending on their past performance and ability to execute projects, he said.

A recent Crisil study has estimated that the top 20 PSUs by cash holding will have an estimated pre-dividend corpus of around ₹1.6 lakh crore by March 31, 2014. These companies (excluding banks) are well placed to pay special dividends of ₹27,000 crore without impacting their capital expenditure, it said.

Akshay Gupta, Managing Director, Peerless MF, said stocks of PSU banks seemed to have bottomed out in terms of various valuation parameters and their dividend yield is quite high.

The challenging environment of slowdown in credit and deposits coupled with restructuring of assets seems to be at the end of a tough cycle. PSU banks are well positioned to take advantage of the upmove expected in the economy in the next two years, he said.

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