Proxy-advisory firm Institutional Investor Advisory Services (IiAS),in its latest study,has observed that several companies even those belonging to benchmark indices have either skipped a dividend or had a low dividend payout,and opined that the board/management must prefer to return a portion of the companys cashpile back to shareholders.
In addition to paying higher dividend,IiAS also recommended that companies,sitting on a higher cashpile than earlier,should chalk out a precise dividend policy and detail reasons for retaining cash in their directors report. These policies must be voted and ratified by the shareholders,said IiAS in it report Dividends: Room for a larger payout.
Of the total 457 profit-making companies in the BSE 500 universe,409 companies declared dividend in FY12. Only 67 companies had a payout ratio of more than 50%. HCL Infosystems,GlaxoSmithKline Pharmaceuticals,Castrol India and Colgate-Palmolive are some of the companies that have consistently paid over 50% dividends in the last five years. However,the number slips to 349 when looking at companies that have consistently paid dividends in the last five years.
With an average payout of 28% in the last five years,MNCs have the highest average payout ratios,followed by professional companies and PSUs with an average payout of 23% and 25% in the last five years. Companies with large promoter shareholdings have been the most miserly in paying dividend,which stands at an average 16% in the last five years.
In FY12,MNCs dividend payout stood at an average 52.4% compared with 36.3% of that of professional companies,33.4% of PSU companies and 28.8% by promoter-owned entities. Some of the companies that paid nil or less than 10% dividend in FY12 included Adani Power,Bharti Airtel,Cairn India,Idea Cellular,Jindal Steel & Power,Kotak Mahindra Bank,Ranbaxy and Reliance Power.
However,the proxy advisory firm is yet to obtain FY13 numbers as only eight of the 30 Sensex companies have so far released their FY13 Annual Report. It plans to release the second part of its FY13 dividend-payout analysis in the quarter ending September 2013.
While declaring dividends,companies should state the quantum of earnings they propose to retain. Managements should detail reasons for retaining this cash.., stated the report by IiAS.