India Inc. once again didn’t shy away from handsomely rewarding its shareholders in 2022-23—that too, despite lacklustre profit growth. Indian companies doled out record high dividends of ₹4 trillion in the last fiscal year, registering a 28% rise from 2021-22, a Mint analysis showed. The analysis is based on 439 of the BSE 500 companies for which data was available. This includes proposed payouts, and uses both audited and unaudited numbers.
“A lot of things appear to have fallen in place in the fourth quarter of FY23,” said Tanvi Kanchan, head of corporate strategy, Anand Rathi Shares and Stock Brokers. “Rural demand picked up, input costs have come down substantially, supply chain constraints are waning, and the Reserve Bank of India has given a hint that it is done with rate hikes for now. Corporate India is trying to make the best of the situation by paying out generous dividends in FY23.”
With this, dividend payments posted strong double-digit growth for the third year in a row. An outpouring of corporate largesse since the pandemic—thanks to a tight leash on costs that led to a massive run-up in profits and a cautious investment environment—resulted in a hefty dividend payout-to-profits ratio of 42% on average in 2020-21 and 2021-22, which rose further to 44.6% in 2022-23 despite just a 6.8% rise in profits.
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But even during the pre-pandemic period, between 2010-11 and 2017-18, these generous giveaways outpaced the bottom-line growth of companies, translating into an average payout ratio of 36.1% during that period.
Top guns
Almost two-thirds of the companies in the sample have been unwaveringly sharing the bounties over the past five years. In fact, 14.3% of the sample has increased their dividend payout each year since 2017-18. Some of the biggest dividend payers include Tata Consultancy Services, Vedanta and public sector firms such as Coal India, Oil and Natural Gas Corp. and Power Grid Corp. of India. “The public sector names saw a spike in dividend payout ratio, although the [profit] growth was calibrated,” Kanchan said. The ones in the vanguard of rewarding their shareholders—the top 10—had an overwhelming 52.4% share in the overall dividends paid in 2022-23. And some of those leading the pack such as TCS, Vedanta and Hindustan Zinc more than doubled their payouts. Altogether, 56% companies have declared more dividends compared to the previous year, of which 13.4% went ahead despite a decline in their profits. Payouts in nearly 5.5% of the firms remained flat during the period.
Biggest beneficiaries
So, is it benevolence? Promoters alone took home 53.4% ( ₹2.1 trillion) of the total dividends paid, witnessing 33% growth (a rise in promoter stakes in some cases also helped). Of this, private promoters mopped up ₹1.3 trillion and the government garnered ₹63,859 crore from dividends. Perhaps, companies are reaping more by distributing more. Sample this: Among the regular dividend payers, promoters with stakes over 70% got a 55.3% growth in their dividends in 2022-23, whereas in companies where their stakes ranged from 50-70%, they saw a 23.4% rise. In firms with promoter stakes below 50%, there was a 40.5% growth.
The overall payouts by both private and foreign firms were on a rise while traditionally high dividend-paying public sector firms saw a marginal decline. “After a tough FY21 and FY22 due to Covid-19, some public sector firms are seeing incremental growth opportunities, prompting them to increase their capital retention ratios (lowering their dividend payout),” Lakshmi Iyer, CEO – investment and strategy, Kotak Investment Advisors, said.
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Sectoral show
On the sectoral front, the broad 18 sectors tracked by Mint showcased a mixed trend: some sectors such as textiles, oil and gas, media and entertainment, and construction and real estate reduced their dividend payouts during the year as their net profits declined but there were some like information technology and metals and mining that bucked the trend. Firms in these two sectors saw a 69% and 65.2% rise in their payouts, despite a 0.7% and 28% decline in their profits, respectively. Increased dividends in IT services are as per the strategy communicated by these firms two years ago, Iyer said, adding that a muted mergers and acquisitions activity in this space also led to higher cash available with firms. The lack of acquisitions has bolstered the cash reserves in the metals and mining space, too. Payouts in five segments—including auto and ancillaries, chemical and consumer goods—surpassed the growth in profits.
