INDIA INC PAYS DIVIDENDS DESPITE FALL IN EARNINGS
India Inc is rewarding its shareholders, unmindful of the fact that profit margins are shrinking and its cash position is not something to write home about.
An ETIG story reveals that the number of Indian companies that paid dividends in the first half of the calendar year has declined by only 4% compared with the same period last year. A surprising revelation as it comes at a time when corporate earnings have started getting impacted by higher costs and declining demand.
The findings of the study may be pointing to a recovery in the financial health of Indian companies and high business confidence in trying times. Nifty companies, excluding oil and financial services firms, had reported an 11% drop in net profit in the first three months of the calendar year.
There had been a much sharper drop in the number of dividend-paying companies last year, when the number declined by 12% in the first half of 2008 over the year-ago period.
"Results of corporate India are likely to be better in the coming quarter. So we can expect sustainable growth in dividend payment as well, " said Hitesh Agrawal, head of research at Angel Broking.
Dividend is the share of profits that a company pays to its shareholders. Payment of dividend is also seen as an indicator that a company is making profits. Usually companies pay dividends once a year, but some come out with interim dividends through the year or special dividends after hitting some significant milestones.
As per the study, 240 companies had their ex-dividend dates in January-June' 09 as against 249 firms in the year-ago period. Ex-dividend dates represent the cut off date for payment of dividends. This date is fixed two days prior to the record date, which is the date on which all shareholders in the record books of a particular company are entitled to receive dividend payment.
Any person holding shares one day prior to the exdividend date is automatically made part of the list of shareholders entitled for a dividend even if he/she does not own shares as of the record date.
A fifth of these 240 companies have come up with dividend payouts of 100% or more. These include ABB, ACC, Axis Bank, Crisil, Asian Paints, TCS and Wipro.
These companies are better placed in terms of cash position. For instance, cement major ACC has seen a 32% growth in cash flows at Rs 984 crore at a standalone level for its financial year ended December ‘08. Asian Paints saw its cash flows more than treble to Rs 128 crore backed by a robust increase in cash profits for 2008-09. TCS and Axis Bank have also reported 20-35% growth in cash flows at the end of last financial year.
Ex-dividend dates are announced by a company after declaring its intention to pay dividend. This implies that some of the companies, which had their ex-dividend dates in the January-June period, would have actually announced it in the preceding month. But the same goes for the data for last year, making the data is comparable.
The study shows that the number of companies that came out with multiple dividends more than doubled in the last six months to 11, compared with just five such companies the first half of 2008.
Courtesy:- ET dt:- 09-07-09
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