ABOUT 50 companies increased their dividend rates this financial year, even as Corporate India, in general, was focussed on cutting costs, because of a lowerthan-expected topline growth.
With the business environment looking up as the year progressed, these companies announced one or more interim dividends, and pushed up the total dividend beyond what they had paid out last year.
Crompton Greaves, Engineers India, India Infoline, TVS Srichakra, Educomp Solutions, Garware Offshore and Kirloskar Oil are among high-profile companies that offered higher dividends to their shareholders. The rates of dividend, in fact, are the highest in recent years, going by dividend history of these companies.
“Higher dividend is usually an indication of better profitability,” said KR Choksey Shares and Securities Chairman Kisan Choksey.
“A good dividend track record helps in many ways. The company will be in a better position to raise funds from investors than those with poor dividend history,” he said.
Some analysts feel higher dividend payout need not strain a company’s financial health. Such a move is justifiable if a company is cash-rich and doesn’t require funds immediately for implementation of any project.
“A company should distribute a large amount of dividend only if it is able to generate incremental amount of cash every year,” said Anagram Capital CEO Mayank Shah.
A good dividend payout highlights the management’s confidence in the company’s prospects and helps in keeping shareholders’ morale high. It gives the company an edge over its competitors in terms of accessibility to the capital market for raising funds, added Mr Shah.
Crompton Greaves has paid a 110% dividend so far in the current year, compared to 100% in ’08-09 and 80% for ’07-08. The company reported a net profit of Rs 386 crore on sales of Rs 3,666 crore for the nine-month period ended December 31, ’09, compared to Rs 397 crore and Rs 4,659 crore, respectively, for the year ended March 31, ’09. Broking firm Anand Rathi Financial Services, in its recent research report, said Crompton Greaves has an adequate revenue visibility on account of the order backlog of Rs 6,100 crore and is expected to maintain its operating profit margin, which stood at 13.2% in April-December ’09, in future.
Engineers India is another major example where the state-owned consulting services major has paid a whopping 1,060% dividend (interim dividend of 1,000% and 60%) in the current year, compared to 185% and 110% in the previous two years.
According to analysts, the large dividend payout has been announced to benefit the government, which is the single-largest shareholder, ahead of divestment of the company. The government holds 90.4% in Engineers India, while institutional investors, including FIIs, own a 6.4% equity. Retail shareholding is only 2.7%. Engineers India reported a net profit of Rs 311 crore on sales of Rs 1,353 crore for the nine-month period ended December 31, ’09, compared to Rs 345 crore and Rs 1,532 crore in ’08-09.