India Inc fares terribly on dividend payouts

By Sourav Majumdar

Indian minority shareholders have reason to be dismayed. India figures at the bottom of a list of countries paying dividends in a 17-country list, with Brazil, China and even Pakistan faring better on that count, a study has found.

With an average payout of 24 percent, India lags behind several other countries in comparison, the latest wealth creation study by brokerage firm Motilal Oswal has found. Brazil is at 40 percent, China at 26 percent, and even Pakistan is at 49 percent.

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The study surveyed payout trends in 2,100 listed, profit making companies for FY11. Low payout and permanent loss of capital are seen as the two key reasons why investors have lost faith in the equity markets, the brokerage firm says.

The average payout for India is at 24 percent, but this is distorted by a handful of companies paying dividends upwards of 40 percent of profit. Out of 2,100 companies, as high as 942 companies have average payout of 5 percent. Another 400 companies have payout of only 15 percent. Thus, almost two-thirds of the companies have payout less than 20 percent, the study says.

“It is expected that company managements would distribute fair share of annual post-tax profits with shareholders and re-deploy the balance for growing the business, which will bring capital appreciation.

However, the experience of India’s minority shareholders with respect to dividends is highly adverse,” the study says.

The study points out that most marginal investors holding these companies are not happy with what they are getting from the managements. This is all the more so after they have seen massive misallocation of retained capital by managements, which did not find favor with institutional investors, leading to massive permanent loss of capital.

This trend is leading to speculators dominating the market, the study reasons. “Speculators are merely seeking change in price; they have no time to wait for the next quarter’s results, leave alone the annual dividend cheque. To bring back long-term investors, we must somehow bring culture of treating minority shareholders with respect, and rewarding them with their rightfully due dividends,” the study says.