Sebi to encourage listed firms to adopt dividend policies

The market regulator has identified dividend distribution policy as a focus area in 2016-17

To help investors get a clearer picture on their returns, markets regulator Sebi plans to encourage listed companies to put in place their own dividend distribution policies.

The proposal forms part of Sebi's Plan of Action for the next fiscal, beginning next month, which was approved by the regulator's board this weekend.

The capital market watchdog would seek to strike a balance between investor interest and not being prescriptive in terms of regulations for dividend payment.

While dividend payment has been in vogue for many decades, having a clearly defined policy in this regard would help investors identify and understand the potential of returns on investments made in a company, a senior official said.

Sebi board has identified dividend distribution policy as a focus area for the regulator in 2016-17 period and efforts would be made to encourage listed entities to work in this regard.

In this regard, Sebi is looking to ensure that listed firms can state circumstances under which investors can or cannot expect dividend payouts.

Late last year, there was furore over InterGlobe Aviation, which operates the no-frills carrier IndiGo, doling out hefty dividends to promoters before its listing as the payout had resulted in the company's net worth turning negative for a brief period.

Though on the anvil for quite sometime, a decision on making dividend distribution policy must for publicly traded companies would be made only after extensive stakeholder consultations.

The capital market regulation might also ask companies to disclose a broad formula for dividend calculation.

At the same time, the Sebi would steer clear of any directive being given to the companies to pay any particular dividend amount as it wants to focus on disclosures rather than being intrusive into financial decisions of the companies.

Earlier, Sebi's International Advisory Body had suggested that companies as a policy should not be forced to pay dividend and it is a better idea to explore mandating a dividend distribution policy for corporates.

A number of companies in India already have dividend distribution policy in place, but it is not mandatory under any regulation and therefore there is no uniformity in such policies of different corporates.

Dividend payouts used to be a major attraction for stock market investors, but as many companies are more focussed on higher share prices they have also cut down on dividend amounts.

In recent times, there have been concerns among investors that listed firms are not paying dividend despite sitting on huge cash piles.

Globally too, investors have been raising their voice against the companies that are hoarding cash and not distributing their extra profits among shareholders.