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Companies cut dividend payouts in FY12

With margin pressure, retaining more cash is a priority but outgo from PSUs still higher than previous year

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Tough times call for prudent measures. Declining profitability has forced promoters of a number of companies to adopt a conservative approach on dividend payout.

Of the 975 companies that have thus far recommended/announced dividend for 2011-12 (FY12), as many as 592 trimmed the outgo (in absolute terms). Of these, 226 have reduced their rate of dividend, while 360 companies held it steady at the previous year’s rate. Six others skipped the payout.

Most companies are finding the going tough due to rising input costs putting pressure on margins and overall profitability. So, most prefer to hold more cash, cutting dividend payouts. The aggregate net profit of these 592 companies declined 13 per cent, data suggests, while the remaining 383 companies that increased the dividend payout have reported an average 14 per cent growth in net profit for FY12.



“Many companies are retaining a part of their profits to strengthen their financial position. The income may be conserved for meeting the increased requirements of working capital or of future expansion,” says an analyst from a local brokerage.

Track record
This trend is also visible in companies that have been good dividend plays till now. Hero MotoCorp, and are a few companies that have cut the dividend rate. For instance, has slashed the payout by more than 50 per cent to Rs 899 crore for FY12 (it was above Rs 2,000 crore in the earlier two financial years). It has, however, proposed to invest Rs 2,575 crore in setting up two manufacturing units and one research and development unit.

Tech Mahindra, and managed to maintain it at the previous year’s pace. Worst hit have been the shareholders in realty and infrastructure companies, such as HCC, Orbit Corp and Ansal Properties. These have not paid/recommended a dividend due to lower profit growth.

Silver lining
The average dividend payout ratio, or the dividend paid as a percentage of profit, increased to 26.9 per cent in FY12 from 24.8 per cent in FY11, thanks to hefty payouts by state-owned companies. A total of 975 companies paid out dividends of Rs 92,813 crore for FY12 against Rs 82,592 crore in FY11. As many as 29 public sector undertakings (PSU), including banks, which account for 44 per cent of total payout, have recommended a dividend of Rs 40,509 crore for FY12, higher by Rs 5,393 crore on a year-on-year basis.

“A dip in profitability has reduced the dividend payouts in the case of several companies. However, in the case of PSUs, the dividend payout is still higher, since it is one of the key revenue sources for the government,” says Jagannadham Thunuguntla, head of research, SMC Global Securities.

Sectorally, the financial sector is on top of the dividend payout chart, with Rs 18,961 crore, about a fifth of the total. It is followed by information technology, crude oil and natural gas, mining and mineral metals and power generation sectors, which have proposed dividend payout of a little over Rs 5,000 crore each.

Coal India, Glenmark Pharmaceuticals, Ingersoll-Rand, Navin Fluorine International, Emami, Manappuram Finance and Hindustan Zinc have recommended a little more than double the dividend they’d paid in the previous year.

 

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Companies cut dividend payouts in FY12

With margin pressure, retaining more cash is a priority but outgo from PSUs still higher than previous year

Tough times call for prudent measures. Declining profitability has forced promoters of a number of companies to adopt a conservative approach on dividend payout.

Tough times call for prudent measures. Declining profitability has forced promoters of a number of companies to adopt a conservative approach on dividend payout.

Of the 975 companies that have thus far recommended/announced dividend for 2011-12 (FY12), as many as 592 trimmed the outgo (in absolute terms). Of these, 226 have reduced their rate of dividend, while 360 companies held it steady at the previous year’s rate. Six others skipped the payout.

Most companies are finding the going tough due to rising input costs putting pressure on margins and overall profitability. So, most prefer to hold more cash, cutting dividend payouts. The aggregate net profit of these 592 companies declined 13 per cent, data suggests, while the remaining 383 companies that increased the dividend payout have reported an average 14 per cent growth in net profit for FY12.



“Many companies are retaining a part of their profits to strengthen their financial position. The income may be conserved for meeting the increased requirements of working capital or of future expansion,” says an analyst from a local brokerage.

Track record
This trend is also visible in companies that have been good dividend plays till now. Hero MotoCorp, and are a few companies that have cut the dividend rate. For instance, has slashed the payout by more than 50 per cent to Rs 899 crore for FY12 (it was above Rs 2,000 crore in the earlier two financial years). It has, however, proposed to invest Rs 2,575 crore in setting up two manufacturing units and one research and development unit.

Tech Mahindra, and managed to maintain it at the previous year’s pace. Worst hit have been the shareholders in realty and infrastructure companies, such as HCC, Orbit Corp and Ansal Properties. These have not paid/recommended a dividend due to lower profit growth.

Silver lining
The average dividend payout ratio, or the dividend paid as a percentage of profit, increased to 26.9 per cent in FY12 from 24.8 per cent in FY11, thanks to hefty payouts by state-owned companies. A total of 975 companies paid out dividends of Rs 92,813 crore for FY12 against Rs 82,592 crore in FY11. As many as 29 public sector undertakings (PSU), including banks, which account for 44 per cent of total payout, have recommended a dividend of Rs 40,509 crore for FY12, higher by Rs 5,393 crore on a year-on-year basis.

“A dip in profitability has reduced the dividend payouts in the case of several companies. However, in the case of PSUs, the dividend payout is still higher, since it is one of the key revenue sources for the government,” says Jagannadham Thunuguntla, head of research, SMC Global Securities.

Sectorally, the financial sector is on top of the dividend payout chart, with Rs 18,961 crore, about a fifth of the total. It is followed by information technology, crude oil and natural gas, mining and mineral metals and power generation sectors, which have proposed dividend payout of a little over Rs 5,000 crore each.

Coal India, Glenmark Pharmaceuticals, Ingersoll-Rand, Navin Fluorine International, Emami, Manappuram Finance and Hindustan Zinc have recommended a little more than double the dividend they’d paid in the previous year.

 

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