More companies offer special dividends to retain investors

MUMBAI: Taking inspiration from Hero Honda, TCS and ITC, many others have joined the bandwagon of companies offering special dividends to the shareholders. A few companies, in fact, have paid out a substantial portion of their net profit as dividends.

Such moves will help in boosting the morale of the shareholders and will also encourage them to stay invested longer to benefit from the company’s growth, according to analysts.

Around 15 companies have doled out one-time special dividend, with Mahindra & Mahindra (M&M), Edelweiss Capital and Pidilite being among the notable examples. In some cases, large dividend payouts have been announced as part of jubilee celebrations.

Payment of special dividend is a company-specific move which depends on many factors like fundamentals, the management policy and can be inspired by a landmark event.

“It makes sense for a debt-free, cash-rich company to offer special or large dividend as it would help in building positive sentiment about it among prospective investors,” said Kisan Choksey, chairman, KR Choksey Shares and Securities.

An increasing number of companies are likely to adopt such moves to share the company’s wealth with its shareholders amid accelerating growth in earnings, he says.

Two-wheeler major Hero Honda tops the list in terms of payout ratio which stood as high as 98.4% in 2009-10. The company has doled out a hefty 5,500% dividend, including a silver jubilee special dividend of 4,000%. The company has recorded a net profit of Rs 2,232 crore out of which Rs 2,197 crore will be distributed as dividend to the shareholders.

Cigarette major ITC recently announced a special centenary dividend of 550%, resulting in a total dividend of 1,000%. Out of the consolidated net profit of Rs 4,168 crore, the dividend outgo will be Rs 3,818 crore or 91.6%. TCS is another blue-chip company which announced a special dividend of 1,000% and a total dividend of 2,000%.

The payout ratio works out at 56%, much lower than that offered by Hero Honda and ITC. The payout ratio for companies like M&M, Pidilite, Edelweiss Capital and JM Financial hovered between 22% and 33%.

There have been high expectations about dividend returns from the companies due to high volatility in the market. This has prompted investors to focus on high-dividend yield stocks across sectors as safe bets.

“While investing in high-dividend yield stocks has its merits, long-term investors should also see that the companies have the capacity to generate enough profits to sustain high payout ratio in future,” said an analyst with a leading broking firm requesting anonymity.

The list also includes many relatively medium- and small-sized companies, including Marathon Nextgen, Seshasayee Paper and Ultramarine Pigment among a few companies which have paid special dividend of 15%, 250% and 50%, respectively.

Source : Economic Times
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