Dividends Now Investors’ Envy, Owners’ Pride Promoters bankroll projects via fat payouts in weak market

Metals tycoon Anil Agarwal earned ten times the national average through dividends last fiscal, when promoter-dominated companies turned generous to fund other businesses of their owners in a weak market. 

More than 200 promoter groups from the public and private sectors grossed . 99,462 crore (approximately $17.8 billion) in dividends in 2011-12, more than sufficient to fund the government's entire food security programme allocation of . 75,000 crore, or to build over 7,000 kilometres of six-lane highways across the country, a study by ETIG shows. Shiv Nadar of HCL and the Tata Group trailed Agarwal, whose Vedanta Group notched up 84% higher dividend income during the financial year, at . 2,045 crore, boosted by 2-2.5 times higher payout by the flagship companies Sterlite Industries (India) and Hindustan Zinc. Tata Group companies paid . 8,657.3 crore in dividends to the promoter group. Special Dividends Higher Than Regular Payouts 
The payout by Tata Group was three times more than the amount received by Reliance Industries Chairman Mukesh Ambani, who earned Rs 2,786 crore. A whopping jump of nearly 80% in dividends paid by the flagship IT exporter Tata Consultancy Services, along with a marginal increase in dividends from Tata Global Beverages and Titan Industries, helped the Tata Group collect its highest dividends in at least the past six years. 
"Conceptually, when the return on equity is down, companies tend to distribute excess funds to investors," said Sandeep Singal, who co-heads institutional equities at Emkay Global Financial Services. "Moreover, in FY12, a lot of companies gave special dividends, which were significantly higher than the regular dividends." 
According to Singal, in a challenging environment, promoters may have to pay themselves higher dividends either to mark-up their existing investments or to make fresh investments in seemingly more profitable businesses or to meet personal cash requirements. Wipro's Azim Premji, who had seen the highest increase in his dividend income in the previous year, saw a flat growth, at Rs 1,475 crore, as his flagship IT company failed to take advantage of a spurt in outsourcing 
Aggregate dividend paid to promoter groups in the sample rose by 9%. The contribution of state-owned undertakings rose at a faster pace of 14.2%, compared with the 5% jump in dividends reported by private companies. Theproportion of state-run companies in total dividends also rose by 200 basis points to 42%. "PSUs have been directed to declare higher dividends. This has bolstered the overall dividend payout," said investment advisor SP Tulsian, while drawing attention to mid-cap staterun banks such as Allahabad Bank, Dena Bank and Andhra Bank, which paid higher dividends. Other large state-owned undertakings, such as Coal India, Rural Electrification Corp and Power Finance Corp, also doled out special dividends. 
Apart from a higher absolute dividend, India Inc also paid a higher proportion of net profit as dividends. The share of dividends in net profit, known as dividend payout ratio, rose to 27.3% in 2011-12, from 25% a year earlier, when the ratio had dropped marginally by 30 basis points. "While I am not particularly excited by an increase in the absolute amount of dividends, the rise in payout ratio looks encouraging," said Tulsian. However, a few analysts attributed the rising payout ratio to the changing structure of listed companies.
"Companies that have not been profitable enough to pay dividends get wiped out gradually. Thus, we are left with a sample largely comprising companies that pay dividends. This will result in better dividend related ratios over time," said Saurabh Mukherjea, equities head at Ambit Capital. Market analysts said the tough economic environment would not impact the trend of higher dividends, even as it threatens to impact growth.