Downturn To Hit Dividend Payout?

Less firms declared divided this year, and with a lower payout ratio, even as earnings come under strain.

The aggregate dividend payout by corporate India may be lower in the current financial year (2011-12), compared to 2010-11.
Only 75 companies had declared an interim dividend in the first half of the current financial year, as compared to 107 in 2010-11.

Moreover, the payout by these companies declined to 32 per cent of net profit, as compared to 40 per cent at the same time last year.

And, a 27 % decline in the second quarter of 2011-12 indicates earnings for the third and fourth quarter may be worse.

The study by the Business Standard Research Bureau estimates the total dividend payout at Rs 7,285 crore (Rs 72.85 billion) by 75 companies in the first six months, compared to Rs 7,290 crore (Rs 72.90 billion) by 107 companies in the corresponding period of last year.

Though the aggregate payout remains almost unchanged, the payout ratio has dropped to 32 per cent from 40 per cent in the previous year.

The payout ratio dropped, as noted earlier, despite a 22.3 per cent rise in net profit of the 75 dividend-paying companies in the first half, compared to a 12.3 per cent rise in net profit of the 107 companies doing so in the same period last year.

It is usually when companies earn handsome profits that they reward shareholders with dividends. If one goes by the huge losses of Rs 37,151 crore (Rs 371.51 billion) by 562 companies in the first two quarters, the corporate payout will be significantly lower this year.

Already, domestic and foreign brokerages have downgraded Sensex earnings by a little over 10 per cent for both 2011-12 and 2012-13 due to growth concerns, a depreciating currency and interest rates.

Reflecting the downturn in investment climate and lower confidence, foreign institutional investor investment has come down to a trickle.

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Source: www.rediff.com/slideshare