Tata Sons prioritises funding new ventures over increasing dividend payouts

Tata Sons has however scaled-up dividend pay-out in the post pandemic period in line with a rise in its earnings

Tata Sons has seen a remarkable surge in net profit in recent years, yet the group’s holding company has channelled these gains predominantly into new ventures, rather than opting for higher dividend payouts. The primary beneficiaries of the dividends remain Tata Trusts, which hold a 66 per cent stake in Tata Sons, and the Shapoorji Pallonji Group. The Trusts, in turn, use these proceeds to fund its wide array of philanthropic initiatives.

In FY24, Tata Sons distributed 4.1 per cent of its net profit as dividend to its shareholders, slightly above the 3.2 per cent payout ratio recorded in FY23. This figure, however, is notably low when set against the company’s decade-long average payout ratio of 15 per cent and pales in comparison to the approximately 35 per cent payout ratio of companies in the Sensex over the same period.

Over the past 10 years, Tata Sons’ standalone net profit has grown at a compound annual rate of 27.5 per cent, leaping from Rs 3,053 crore in FY14 to Rs 34,654 crore in FY24. During this time, dividend payouts have increased from Rs 323.3 crore to Rs 1,414.4 crore, reflecting a CAGR of 15.9 per cent. Tata Sons skipped dividend payments in FY20 amid the Covid-19 pandemic, despite posting a 134 per cent year-on-year growth in net profit.

Following the pandemic, however, Tata Sons has adjusted its dividend policy in alignment with rising earnings. Since FY21, dividends have more than trebled in absolute terms, increasing from Rs 404.1 crore to Rs 1,414.4 crore in FY24 -- a CAGR of 51.8 per cent. In comparison, net profit during this period soared more than fivefold, with a CAGR of 74.6 per cent, rising from Rs 6,511.6 crore in FY21.

Capitalising on its profit surge, Tata Sons has injected fresh capital into unlisted group ventures in aviation, retail, e-commerce, defence, and electronics manufacturing. The company has also taken steps to deleverage, using part of the proceeds to repay debt. Over the past three years, Tata Sons has committed nearly Rs 50,000 crore to group ventures and cleared around Rs 30,000 crore in loans, according to data from Capitaline.

This profit boom is largely attributable to substantial dividend payouts and share buybacks from Tata Consultancy Services (TCS), the group’s primary cash generator, contributing around 80 per cent of Tata Sons’ dividend income (including proceeds from share buyback). Other group companies such as Tata Motors, Titan Company, and Tata Steel have also boosted their dividends in the post-pandemic period.