Sebi chief U.K. Sinha’s proposal to ask listed firms to formulate a ‘Dividend Distribution Policy’ for non-promoter shareholders citing lar-ge cash reserves on their balance sheets could have several benefits for both shareholders and corporates said Institutional Investor Advisory Services (IiAS).
“The potential for higher payouts huge. As per the report IiAS has done, while the markets as a whole can pay higher dividends , 77 companies in BSE500 could pay dividends aggregating to almost Rs 36,000 crore after taxes: almost twice the amount these companies actually paid in FY13 (Rs 19,400 crore),” said IiAS. The report on the dividend payout data of BSE500 companies for the five year period between 2007-08 and 2011-12 revealed that the median payout ratio for these 500 companies increased from 19.9 per cent in 2007-08 to 22.5 per cent in 2011-12.
Despite this increase in payouts, companies have been accumulating cash over the five-year period. The aggregate closing cash balances and non-core investments with companies, excluding banks and NBFCs, stood at Rs 2,24,800 crore in 2011-2012, said the report. IiAS says that Sebi should make it mandatory for companies to state their dividend policy to shareholders and should also be placed before shareholders’ for ratification. Firms that make profits and yet propose not to pay dividends in any given financial year in line with stated dividend policy should det-ail the reasons in the director’s report.
While declaring dividends, companies shou-ld state the quantum of earnings they propose to retain. Managements should detail reasons for retaining this cash, added IiAs. Firms should give the rationale for its investments and the timeframe for exiting them.
