India Inc to pay lower dividend for 2011-12

The aggregate dividend payout by the corporate sector is likely to be lower in financial year 2011-12 than the Rs 85,690 crore paid in the previous year.

There are, at least, three good reasons for this belief. First, the aggregate net profit of 1,461 dividend-paying companies has declined five per cent in the first nine months of the current year. Second, 622 companies may prune their dividend due to a significantly high 26 per cent decline in net profit. Third, as many as 158 companies will be out of the dividend list because of net loss in the first nine months of 2011-12.

So, only 681 companies may go for higher dividends owing to a strong 26 per cent rise in net profit in the first nine months of the current financial year.

Says Kamlesh Kotak, head - equity research, Asian Markets Securities: “With global uncertainty and tight domestic liquidity, along with declining profitability, most companies will prefer to hoard cash and may adopt a conservative approach as regards dividend payout.”

In the first nine months of 2011-12, as many as 150 companies paid an interim dividend of Rs 21,895 crore, led by 14 public sector undertakings (PSUs), which shared Rs 13,000 crore and Infosys which paid an interim dividend of Rs 2,296 crore, including a 30th-year special dividend. Among others, Tata Consultancy Services, Hindustan Unilever, the Sun TV Network and Colgate-Palmolive are consistent interim payers.

Kotak indicated some would pay good dividends. He said: “Cash-rich companies with an asset-light business model and no major capex on the horizon will continue higher payout. PSUs may have good payout, as the government will continue to milk these entities to meet the budgetary deficit.”

Information technology, pharmaceuticals, fast moving consumer goods, consumer durables and automobiles would be among the sectors expected to pay higher dividend.

It is usually when companies earn handsome profits that they reward shareholders with dividends. If one goes by the huge losses of Rs 19,559 crore notched up by 158 companies in the first three quarters, the corporate payout will be significantly lower this year. The major impact will be felt if the three public sector oil marketing companies continue to bleed.

Construction and infrastructure, the engineering procurement and construction businesses, real estate, metals, banking, oil and gas, sugar, fertilisers, capital goods and engineering, and power haven’t done well and are likely to cut dividends.

Among the top dividend payers in 2010-11, Indian Oil Corporation had reported a net loss of Rs 8,716 crore in the first nine months, followed by Hindustan Petroleum at Rs 3,719 crore and Bharat Petroleum at Rs 2,652 crore. The payout will be also significantly impacted due to a fall in net profit of public sector banks. And, the private sector metal, construction and realty companies may find it difficult to maintain their dividends.