Four years ago, market regulator SEBI had made it mandatory for the top 500 companies by market capitalisation to disclose their dividend distribution policy to the public. It had asked the companies to declare in their annual reports and on their web sites the circumstances under which a shareholder can expect dividends and the financial parameters that would be considered before declaring dividends.

Additionally, the company would also have to lay out the internal or external factors it would have to watch out for, before deciding on dividends and the provisions it will make for various classes of shares.

Though some companies have formulated their dividend distribution policies and continue to give consistent and steady increase in payouts, most of them are following the rule only in letter and not in spirit.

The problem with a good number of high dividend paying companies is that they pay dividend once in a year as final dividend. But with a final dividend payment, the proposal has to be approved by their shareholders at the AGM. Most of the times, AGMs fall only in the second quarter of the succeeding financial year, making investors wait for a long time for the dividends.

At a time when the government wants more cash in the hands of the public to boost a sagging economy, SEBI can perhaps revisit the dividend policy once again, so that investors receive steady cash flows throughout the year.

For instance, Indian companies can emulate the example of the US companies where most firms pay dividend on quarterly basis. This will improve the cash flow to the investors, thus easing their cash crunch. Already many banking and information technology companies and progressive companies are declaring quarterly dividends, perhaps due to the presence of large FIIs/FPIs in their shareholding.

Besides, the interim dividends can be decided by the boards of companies without waiting for shareholders’ nod at the AGM, thus enabling companies to declare the dividend when they approve quarterly numbers. Companies may allot a small portion of their net profit as quarterly dividend and a higher quantum may be paid after the annual financial results are announced.

Another issue that may need uniformity is the declaration of dividend payment on a per share basis rather on a percentage basis. Possibly to impress the investing class, some companies announce dividends as a percentage of the face value. A 100 per cent dividend by companies with a share face value of ₹10 is very different from companies with a face value of ₹1.

Per share basis norm

SEBI should issue a diktat that the dividend announcement should be made on a per share basis and not on percentage terms so that investors can easily relate the value of the dividend payments to the stock price.

These are all small steps that can boost the image of corporates vis-a-vis governance issues.

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