The dividend route to disaster

Abnormally high dividend pay-outs may harm not only the company but also the market and the economy

It is raining dividends! And pouring in some quarters. As reported in this paper (Business Standard, June 7), the dividend ratios of several companies have gone up significantly, with many top payers more than doubling these in FY23. This is generally good news for shareholders, who are happy, and for the market and the economy. Promoters and promoter group entities, holding substantial shareholding in some of those companies, are happier, since in absolute terms they receive huge amounts.

However, a company’s dividend distribution policy, even in the case of dividend stocks, is not solely about maximising the dividend of shareholders.