Payback time: India Inc cut back on dividends in FY24 despite record profit

Despite a boom in corporate profitability, listed firms in FY24 reduced dividend payout, which was down 4.7 per cent year-on-year (Y-o-Y) to Rs 4.03 trillion from the record high of Rs 4.23 trillion in FY23.

In comparison, combined net profits (adjusted for exceptional gains and losses) of all companies in the Business Standard sample were up 29.9 per cent Y-o-Y to an all-time high of Rs 14.75 trillion last financial year from the Rs 11.36 trillion in FY23.

A cut in dividend payout last financial year came after three years of high double-digit growth, mirroring the boom in corporate profits in the post-pandemic period.

Dividend payout by listed firms in the sample had increased at a compound annual growth rate (CAGR) of 29.5 per cent between FY20 and FY23. Annual payout jumped from Rs 1.95 trillion in FY20 to Rs 4.23 trillion in FY23. For comparison, corporate net profits (adjusted for exceptional gains and losses) grew at a CAGR of 33.7 per cent between FY20 and FY23.

In contrast, equity dividend payout by companies was struggling to grow in the pre-pandemic period. Payout by listed companies in the sample had grown at a CAGR of just 3 per cent between FY17 and FY20. It had increased from Rs 1.78 trillion in FY17 to Rs 1.95 trillion in FY20.

The companies’ combined net profits had declined during the period from Rs 4.81 trillion in FY17 to Rs 4.75 trillion in FY20.

This is the first Y-o-Y cut in dividend payout by corporate India in the last five years. 

The last time it happened was in FY19, when it had declined to Rs 1.85 trillion from Rs 1.87 trillion in FY18.

The contrasting moves in dividend and corporate profits in FY24 led to a decline in the dividend payout ratio. The ratio declined to 27.3 per cent in FY24, the lowest in at least nine years. For comparison, the ratio was 37.2 per cent in FY23 and it had reached an all-time high of 41.2 per cent in FY20. (See the adjoining charts.)

Analysts attribute the decline to skewed growth in corporate earnings in FY24, forcing top companies in many sectors to cut dividend and conserve cash internally.

“Earnings growth in FY24 was largely led by public-sector banks, oil-marketing companies, and automakers while companies in high dividend-paying sectors such as information-technology services and FMCG (fast-moving consumer goods) struggled with poor demand and earnings growth last year. Besides, metal and mining companies also reported an earnings decline in FY24,” said Dhananjay Sinha, co-head, research and equity strategy, Systematix Institutional Equity.

In all 999 companies (35.7 per cent of the sample) declared an equity dividend in FY24, down from 1,038 companies (37 per cent of the sample) in FY23.

The decline in dividend payout was led by top payers in the private sector such as Tata Consultancy Services (TCS), ITC, Vedanta, Hindustan Zinc, Bajaj Auto, and JSW Steel.

For example, TCS paid Rs 26,426 crore in FY24, down 37.2 per cent from the Rs 42,090 crore in FY23.

Similarly, ITC cut payment by 10.9 per cent in FY24 while Vedanta paid just Rs 10,463 crore, down 70.9 per cent from the Rs 37,758 crore in FY23.

In contrast, public-sector banks and oil-marketing firms stepped up payout and paid record dividend in FY24 in line with a rise in their earnings.

Combined payout by public-sector companies such as Indian Oil, Hindustan Petroleum Corporation, Life Insurance Corporation, Bharat Petroleum Corporation, State Bank of India, REC, and Punjab National Bank was up 28.7 per cent Y-o-Y to Rs 1.26 trillion in FY24, up from the Rs 97,752 crore a year earlier.

As a result, central public sector companies’ share in payout was 31.2 per cent in FY24, the highest in the last six years.