Investors cheer more cos under div payout policy

ET Intelligence Group: In a year when several large and small companies have altered their dividend policies, market regulator Sebi’s new rule extending the requirement of formulation of dividend distribution policy by the existing top 500 listed entities to the top 1,000 listed entities (based on market cap) has proved to be a timely move.Accumulated surpluses, excess liquidity with companies and limited opportunities to invest in the short-to-medium term are prompting companies to reward their shareholders handsomely.Last month, Bajaj Auto made changes to its dividend policy stipulating dividend distribution of up to 90 per cent when the surplus cash is over Rs 15,000 crore; up to 70 per cent in case of a surplus of Rs 7,500-15,000 crore and up to 50 per cent if the surplus is below Rs 7,500 crore.A month earlier, Hindalco outlined its new dividend policy of paying 8-10 per cent of its consolidated free cash flow to its shareholders, as against its earlier policy of paying out 10-30 per cent of its standalone net profit. Around the same time, small-cap company Share India Securities, specialising in a latency-based trading platform, approved a dividend distribution policy from 2020-21 onwards of making regular payment of at least 12 per cent of lower standalone or consolidated net profit. In March last year, ITC fixed its dividend payout at 80-85 per cent of its profit after tax. 81807077This is in line with the global trend of companies altering their dividend policy to dole out more dividends to their shareholders after making provisions for cutting down debt. In a difficult year, companies have thought it best to distribute surplus funds to their shareholders.Incidentally, the Reserve Bank of India altered the dividend policy for stressed businesses such as banks and non-banking financial companies (NBFCs). It asked banks not to pay dividends this year given their stretched balance sheets pummelled by the pandemic and proposed to allow only those NBFCs that meet the prescribed prudential requirements on capital and asset quality to pay dividends.Five years ago, shareholder complaints about many companies refusing to pay dividends despite having extra cash had prompted Sebi to mandate the top 500 listed companies to have a dividend distribution policy.As part of the policy, the companies were to list out the circumstances under which the shareholders may or may not expect a dividend. Besides, the policy needed to spell out the financial parameters, as also various internal and external factors, to be considered for declaring a dividend.With this requirement now becoming applicable to 500 more companies, it would help strengthen the governance and financial planning functions in the smaller companies and provide more tools for decision-making to institutional investors.

from Economic Times https://ift.tt/3magANd