Boardroom bonanza: Dividend payout up 9% as India Inc sees recovery

All 268 early-bird firms in surveyed sample may pay a total of Rs 1.16 trillion

Post-pandemic recovery in corporate profits, thanks to lower raw material and operating expenses, means that shareholders can expect higher dividends in FY21.

The combined dividend payout by early-bird companies -- those that have declared their results for FY21 -- is up 8.9 per cent, lower than the 21.9 per cent rise in in FY20 but ahead of the underlying growth in India Inc business last year.

Combined net sales of these early birds were down 1.8 per cent last financial year while net profit was up 27.3 per cent in FY21.

Some top companies that have stepped up dividend payout in FY21 include Hindustan Unilever, Indus Towers, Tata Steel, Ultratech Cement, Larsen & Toubro, Dabur, Asian Paints, and UPL.

In contrast, banks have skipped dividends under an RBI diktat while companies such as Marico, TCS, Maruti Suzuki, and Godrej Consumer are paying lower dividends for FY21. 

TCS remains the top dividend payer, Rs 14,250 crore, down 48 per cent from Rs 27,375 crore a year ago. It was followed by Infosys, which is paying Rs 11,469 crore, Hindustan Unilever (Rs 9,517 crore), Indus Towers (Rs 5,422 crore), Larsen & Toubro (Rs 5,056 crore) and Reliance Industries (Rs 4,511 crore).

In all the 268 early-bird companies in the Business Standard sample propose to pay a combined equity dividend of around Rs 1.16 trillion, up from around Rs 1.06 trillion a year ago. This translate into a dividend payout ratio of 28.5 per cent in FY21, down from 33.3 per cent a year ago.

In other words, the companies distributed 28.5 per cent of their net profit as dividend in FY21 against 33 per cent in FY20. For comparison, these companies reported combined net profits of Rs 4.06 trillion in FY21, up 27.3 per cent year-on-year.

Non-IT companies have stepped up their dividend payout in FY21. Their combined dividend payout is up 23.3 per cent in FY21 -- growing at the fastest pace in the past five years.

These companies propose to pay Rs 78,127 crore for FY21, up from Rs 63,380 crore in FY20.

For comparison, the dividend payouts by these companies have grown by just 4.1 per cent in FY20.

In contrast, IT companies such as Tata Consultancy Services, Infosys, Wipro, and HCL Technologies, among others, have cut back on dividend payouts in FY21. The IT companies in the early bird sample propose to pay a combined dividend of Rs 37,568 crore in FY21, down 12.2 per cent from a payout of Rs 42,811 crore in FY20.

Analysts attribute a cut in dividend payout by IT companies to an increase in share buyback by top IT companies last financial year.

For example, Infosys is planning to spend Rs 9,200 crore on share buyback in the current quarter while TCS and Wipro will pay Rs 16,000 crore and Rs 9,500, respectively, on share buyback in FY21.

In all the top five IT companies will spend Rs 34,700 crore on share buyback for FY21, up from around Rs 18,000 crore last financial year. In contrast their dividend payout for FY21 is Rs 35,248 crore, down 11 per cent from Rs 39,562 crore in FY20.

However, together with share buyback the shareholders of the top five IT companies propose to transfer a record Rs 69,948 crore to their shareholders, up 21.6 per cent year-on-year.

The IT sector remains the single biggest source of dividend for equity investors. Together IT companies accounted for nearly a third (32.5 per cent) of equity dividend in FY21, down from a 40.3 per cent share in FY20. In comparison, IT companies accounted for 21.7 per cent of the combined net profit of early bird companies and 14.8 per cent of the sample combined net sales.

India Inc’s market capitalisation has grown much faster than growth in dividend or share buyback, which means a lower dividend yield for investors who enter the market late. 

The early bird companies’ combined market capitalisation is up 79 per cent since the end of March 2020.

As a result, the dividend yield declined to a record low of 0.9 per cent now from 1.5 per cent at the end of FY20.