You are on page 1of 4

InFocus

Stocks

Increment to shareholders
Fifty companies have increased the dividend payout ratio
in the latest financial year
The board of directors of Infosys, the
countrys leading software exporter, has decided to change its dividend policy. The company has increased the dividend payout ratio to up to 40% of the post tax profit from
fiscal ended 31 March 2014 (FY 2014). Earlier, the software firm had a policy of paying dividend up to 30% of profit after tax.
Infosys declared total dividend of Rs 63
per share for FY 2014 as against Rs 42 paid
in FY 2013. This included interim dividend
of Rs 20 (FY 2013 interim dividend of Rs
15) and final dividend of Rs 43 per share
(FY 2013 Rs 27). The company reported
earning per share (EPS) of Rs 186.3 for FY
2014 and Rs 164.9 for FY 2013. According
to Infosys, the payout ratio has been increased to enhance the return to the shareholders. A higher payout ratio will negatively
impact its earning per share (EPS) by approximately Rs 1.5 due to lower non-operating income.
The software major is often blamed for
unnecessarily hoarding excess cash with no
visibility over its usage. The management is
considered conservative and reluctant to go
for mega acquisitions unlike its peers such
as Tata Consultancy Services and Wipro.
Due to its aversion to undertake the inorganic route, the company continues to

May 12 25, 2014 CAPITAL MARKET

struggle with a mountain of cash. It had cash


and cash equivalents of US$ 4.8 billion on
31 March 2014.
Evidently, a high cash hoarding is one of
the reasons that Infosys has opted to increase the dividend payout ratio. This is good
news for Infosyss shareholders, particularly
long-term investors. At the current market
price, Infosys will provide a dividend yield
of 1.98%. This seems dismally low. However, it could be attractive for long-term investors. For instance, prior to October 2004,
the Infosys stock was available below Rs
1000. Considering this level, its dividend
yield works out to 6.3%. This tax-free income is certainly comparable with interest
of around 8% on bank fixed deposits.
This goes on to show that if a company
reports robust growth in the top line and
the bottom line on a consistent basis, the
dividend yield could increase over a period
of time. As per its revenue guidance, Infosys
expects to clock revenue growth of 7% to
9% in dollar terms in the current fiscal. With
linear growth in the bottom line expected,
the shareholders of Infosys can expect further increase in absolute quantum of dividends in the current year as well.
The payout ratio is determined as equity dividend amount upon profit after tax

minus dividend distribution tax. This ratio


is expressed as percentage. The dividend
yield is calculated as dividend per share upon
share price and expressed as percentage.
Cairn India announced dividend of Rs
6.5 per share, or 65% on face value of Rs 10,
as final dividend for FY 2014. The firm has
already paid Rs 6 as interim dividend. This
amounts to payout of 22.46% including dividend distribution tax on the consolidated
profit for FY 2014. The company has increased the payout ratio and also the quantum of dividend.
In FY 2013, the oil and gas exploration company paid dividend of 115%,
which translated into payout ratio of
18.8%. Its reported financial turnaround
in FY 2009 and paid its maiden dividend
in FY 2013.
Capital Market narrowed down 50 companies that companies that are commanding
to their book values were only selected.
Further, companies with market capitalization greater than Rs 100 were picked and
had reported increase in dividend payout
ratio and increase in dividend in percentage
terms as well. As a first step, the payout
ratio for the latest financial year was compared with that of the immediate previous
year. Only those companies reporting increase in the dividend payout ratio in the
latest financial year were picked.
As a next step, companies to have paid
higher dividend in percentage terms were
shortlisted. Lastly, companies reporting increase in the bottom line in the latest trailing
12 months (TTM) were selected. In short,
companies with a spurt in both dividend

19

InFocus
and payout ratio and reporting improved
bottomline performance in the latest TTM
period were picked.
These 50 companies have handed out
increments to their shareholders. This could
be a testimony to their strong cash-flows.
It also could be an attempt to drain out
excess cash, which, in turn, could improve
their return ratios such as return on equity
(ROE). Each of these companies could be
explored for their fundamental attributes
and growth outlook. If they manage to improve upon their financials over the medium to long term, these companies can
offer steady earning to their shareholders
in the form of stable dividends.
Among the shortlisted companies, Poly
Medicure and Atul Auto are two notable
examples of how dividend yield can improve
along with robust financial performance.
Medical accessories and devices maker Poly
Medicure paid dividend of Rs 4 per share,
or 40% on face value of Rs 10. The company was trading in the range of Rs 10 to Rs
25 in the period September 2008 to June
2009. Those who bought the stock in in this
period must be reaping rich benefits. Over
the last five years that is between FY 2008
and FY 2013, the turnover increased 2.9
times and profit 3.2 times.
Similarly, manufacturer of passenger and
commercial three-wheelers Atul Auto, paid

Over the last five years, Atul Autos net sales was up 4.5 times and profit 20 times

dividend of Rs 6 per share (60%) in FY 2013.


The stock was available below Rs 20 between October 2008 and May 2009. It is an
amazing success story in the automobile
sector. Over the last five years, net sales
have improved by a whopping 4.5 times and
profit 20 times.
Mind the fact that there is seldom a secular rise in the payout ratio over the medium
to long term. Investors need to spot a
broader trend and, accordingly, firm up their
mind about the dividend policies adopted
by companies.

Three types of rewards


Residual, stability and hybrid are three key approaches to dividends
The dividend policy covers broad
guidelines that decide the quantum of
money to be paid out to the shareholders out of earning. Investors seldom take
into consideration the dividend policy of
a company while buying shares. Indeed,
many theories suggest that the dividend
policy is irrelevant for investors.
Residual, stability and hybrid are
three key approaches to dividends.
Under the residual dividend policy, the
company works on the capital budget
first. The attempt is to meet expansionrelated expenditure through internal
accrual. What is left after the exercise is
distributed as dividend to the shareholders. The key problem with this model is
the possible wild swings in the dividend
paid to the shareholders. At the same
time, companies can keep the balance
sheet clean with minimal possible debt.

22

Under the dividend stability


policy, dividend payout ratio is predetermined. Dividend is paid out of
earning as per the pre-decided dividend
payout ratio. Such companies could
even opt for interim or quarterly
dividends. This policy is predictable
and long-term investors could benefit
out of this policy.
The third approach to dividend is
the hybrid approach, which is a
combination of both the residual and
stability policies. Unlike the residual
policy, the company takes a long-term
view on the debt- to-equity ratio. This is
a more popular approach to dividends.
The company decides on a certain
minimum dividend payout ratio and top
it up based on the performance. Thus,
depending on the business cycle the
quantum of dividend paid could vary.

This is because companies tend to keep


their dividend policies generic with no specific dividend payout ratio being communicated to shareholders. Many times, companies remain silent on dividend policies in
crucial documents such as annual reports
and investors presentations. This is also
because announcing a dividend policy is not
practical. This is particularly true for companies that are growing and require growth
capital on a regular basis. Dividend policy
is largely relevant for long term investors.
Short investors rarely bother about dividends and payout ratios (see box: Three
types of rewards).
Indeed, the dividend policies could
change based on market conditions such as
economic scenario, business and industry
outlook, and company-specific issues. During gloomy economic situation, if investment
opportunities are not available, companies
could prefer to return excess cash to the
shareholders. In such a scenario, the payout
ratio could improve rather than decline. The
economic slowdown can be viewed differently some other companies. These companies could prefer to converse cash instead of
doling it out to shareholders. Therefore,
variation in dividend policy is normal and
on expected lines. What investors can do is
to look at long term trend and try to make
sense out of it.
Further, several companies prefer to
maintain dividend in percentage intact, at
least in the short run. In this scenario, if
the earning in the latest year has improved, the dividend payout ratio could
witness a decline. Therefore, it is essential for companies to look at the dividend

May 12 25, 2014 CAPITAL MARKET

InFocus
payout ratio and dividend in percentage
terms as well.
Investors should take due care of special dividends, which is largely a one-time
affair. This is also what the hybrid approach
suggests. Maker of power equipments
Alstom India announced a dividend of Rs
14 per share for FY 2014. This included
special dividend of Rs 4 per share on account of sale of the transport business. The
company had paid dividend of Rs 10, or
100% on face value of Rs 10, in the previous financial year that is FY 2013.
In January 2014, Alstom approved hiring off its transportation system undertaking to a group company Alstom Transport
India on a slump-sale basis. Slump-sale refers to sale at a lumpsum amount without
valuing each individual assets and liabilities.
As per the agreement signed in March 2014,
the transfer of the business became effective from 31 March 2014. The profit of Rs
116.9 crore earned on the disposal of the
business has been treated as Exceptional
item in the profit and loss account.
Sasken Communication Technologies had declared interim dividend of Rs 3
per share for the quarter ended 31 March
2014 and final dividend of Rs 1.5 per share
having face value of Rs 10 each for FY 2014.
The aggregate dividend will be Rs 32 per
share for FY 2014. This will include interim dividend of Rs 5.5, special dividend
of Rs 25 and final dividend of Rs 1.5 per
share. The special dividend was paid as the
company had completed 25 years in businesses. The software services and prod-

Wyeth paid Rs 145 per share on Rs 10 share as interim dividend in the December 2013 quarter

ucts company has paid dividend of 70% in


each of the last three years, that is, FY
2011 to FY 2013.
Pharmaceuticals company Wyeth had
paid a whopping Rs 145 per share, or 1450%
on face value of Rs 10, costing Rs 329.4
crore, as interim dividend in the December
2013 quarter. It has not announced any final
dividend for FY 2014. The firm paid dividend of 170%, or Rs 17 per share of face
value of Rs 10, in FY 2013. Wyeth is in the
process of merging itself with Pfizer.
Conclusion
Irrelevant to market punters and traders,
dividend is an important source of revenue for the long-term investors. Investors should know the dividend policies of

companies before taking an investment


call. The dividend yield at the current level
could be low. Indeed, it is low in most
cases. However, the yield could improve
over the medium to long term and making
it a lucrative investment.
The shortlisted companies have reported
increase in dividend payout and also spurt
in the bottom line on TTM basis. Investors
can explore these stocks to spot those with
a robust future. Over the medium to long
term, these companies could offer better
yield along with capital appreciation. Investors need to assess valuations while taking
an investment call as these stocks have been
picked based on the dividend payout ratio
and valuations have been ignored.
S Khedekar

Rewarding investors
Companies with market cap greater than Rs 100 crore and reporting increase in dividend payout ratio and dividend in percentage

COMPANY

Accelya Kale Solutions

CMP MARKET
CAP
(Rs) (Rs cr)
768.0

1146.6

LOW
(Rs)
368.0

52-WEEK
P/E
HIGH RATIO
(Rs)
831.0

14.3

P/BV DIVIDEND
YIELD
(%)
11.25

TTM CHG IN
ENDED TTM PAT
(%)

YEAR
END

DIVIDEND (%)
LATEST PREV.
YEAR YEAR

PAYOUT (%)
LATEST PREV.
YEAR YEAR

9.11

201403

10.5

201306

700.0

235

156.8

104.2
16.2

AIA Engineering

603.3

5688.7

275.0

622.0

19.5

4.01

0.67

201312

34.9

201303

200.0

150

18.5

Ajanta Pharma

992.7

3490.3

475.3

1086.1

31.9

8.87

0.42

201312

82.2

201303

125.0

75

13.4

11.6

Amara Raja Batteries

409.9

7000.2

207.8

460.0

20.2

6.61

0.61

201312

21.6

201303

252.0

189

15.4

15.4

Apollo Hospitals Enterprise

891.1 12396.3

802.0

1096.2

43.2

4.51

0.62

201312

10.9

201303

110.0

80

27.2

26.6

Arvind

183.2

4729.9

65.0

197.1

13.7

2.39

0.90

201312

40.3

201303

16.5

10

17.7

6.0

Asian Paints

505.2 48454.0

376.4

560.0

41.0

14.32

0.91

201312

5.4

201303

460.0

400

40.7

40.0

Asian Star Company

556.0

890.2

512.0

801.0

9.2

1.89

0.36

201312

113.3

201303

20.0

15

6.8

3.9

67.8

554.5

30.2

69.5

10.9

2.30

1.18

201403

41.1

201303

40.0

35

18.1

17.8

384.5

421.8

145.0

411.8

14.6

5.69

1.56

201312

28.5

201303

60.0

50

26.5

24.4

Astra Microwave Products


Atul Auto

May 12 25, 2014 CAPITAL MARKET

23

InFocus
COMPANY

CMP MARKET
CAP
(Rs) (Rs cr)

LOW
(Rs)

52-WEEK
P/E
HIGH RATIO
(Rs)

P/BV DIVIDEND
YIELD
(%)

TTM CHG IN
ENDED TTM PAT
(%)

YEAR
END

DIVIDEND (%)
LATEST PREV.
YEAR YEAR

PAYOUT (%)
LATEST PREV.
YEAR YEAR

Axis Bank

1519.2 71500.9

764.0

1555.0

11.3

1.86

1.18

201403

20.0

201303

180.0

160

16.6

16.1

Bajaj Finance

1874.3

9397.7

965.5

1890.0

13.4

2.79

0.79

201312

30.8

201303

150.0

120

12.9

12.4

Balmer Lawrie Investment

198.1

439.8

171.0

219.9

12.9

6.54

5.55

201312

10.8

201303

110.0

100

78.5

78.1

Berger Paints India

240.7

8340.3

185.4

256.3

35.1

8.76

0.75

201312

8.5

201303

90.0

70

30.0

28.1

Cairn India

334.9 63996.0

273.4

371.7

5.2

1.11

3.43

201403

3.1

201403

125

115

19.2

18.2

Can Fin Homes

239.4

490.5

113.0

257.4

6.5

1.08

1.67

201403

39.9

201303

40.0

30

15.5

14.4

CARE

789.0

2288.1

415.1

874.9

24.1

5.09

2.50

201312

16.5

201303

200.0

100

54.8

27.7

Datamatics Global Services


Dhanuka Agritech
Divis Laboratories

50.5

297.4

18.6

59.8

7.0

1.00

3.68

201312

54.4

201303

20.0

15

36.9

16.1

257.5

1287.3

117.2

286.1

20.8

4.90

1.18

201312

36.6

201303

152.0

110

24.0

19.9

1380.0 18318.8

905.0

1459.0

32.2

7.33

1.09

201312

21.1

201303

750.0

650

35.0

34.2

Excel Crop Care

527.2

579.9

160.0

589.8

28.0

2.33

0.57

201312

212.2

201303

60.0

40

16.0

13.6

Fiem Industries

417.4

499.2

179.1

441.6

18.5

3.24

0.96

201312

48.3

201303

40.0

30

17.8

17.5

Glenmark Pharmaceuticals

604.4 16393.1

479.5

612.2

24.6

5.93

0.39

201312

11.3

201303

237.2 46.62

10.3

2.7

Gujarat Fluorochemicals

318.9

3504.2

190.0

334.9

12.1

1.11

1.16

201312

40.9

201303

370.0

350

7.4

5.0

Hatsun Agro Product

270.0

2907.9

100.0

325.0

34.7

22.44

0.63

201312

102.3

201303

170.0

130

43.9

40.3

1869.0

ICRA
IndusInd Bank
Infosys

1869.0

938.1

1975.0

25.5

5.51

1.18

201312

25.7

201303

220.0

200

40.0

39.5

479.0 25186.4

318.0

530.6

17.9

2.91

0.62

201403

32.7

201303

30.0

22

15.2

13.1

3177.2 182447.5

26.7

2222.6

3847.2

18.2

4.10

1.98

201403

13.0

201403

1260.0

840

36.0

Infotech Enterprises

314.5

3521.1

157.0

389.0

13.2

2.22

1.43

201403

15.1

201303

90.0

50

23.9

19.0

Ipca Laboratories

838.7 10584.4

506.4

906.9

33.6

6.81

0.48

201312

25.0

201303

200.0

160

16.0

14.9
20.9

J&K Bank

1679.8

8143.4

995.0

1793.2

8.0

1.67

2.98

201312

16.7

201303

500.0

335

23.9

Kaveri Seed Company

631.1

4348.0

231.0

657.6

20.1

12.59

0.50

201312

79.3

201303

160.0

40

17.6

9.6

Kewal Kiran Clothing

1246.0

1536.3

685.0

1288.0

24.5

6.05

1.40

201312

27.3

201303

175.0

170

43.2

43.0
10.2

KRBL

57.8

1360.0

19.4

63.9

6.4

1.64

1.40

201312

37.8

201303

80.0

30

14.7

Liberty Phosphate

173.7

250.8

75.5

226.0

0.7

1.52

1.73

201312

696.2

201303

30.0

18

14.0

4.9

Mcleod Russel India

269.4

2948.3

240.4

330.0

11.4

2.12

2.60

201312

17.6

201303

140.0

120

28.5

23.5

MOIL

253.4

4257.1

182.4

272.0

9.1

1.54

2.17

201312

11.7

201303

55.0

50

22.2

21.2

Natco Pharma

799.0

2642.1

390.0

877.0

29.4

4.12

0.47

201312

22.6

201303

40.0

30

19.7

16.4

Page Industries

5811.7

6480.0

3570.0

6750.0

45.6

30.35

0.86

201312

34.2

201303

500.0

370

53.9

49.6

Phoenix Mills

248.4

3598.1

185.0

293.0

47.1

2.05

0.89

201312

21.8

201303

110.0

100

42.0

35.5

Pidilite Industries

318.1 16303.2

219.7

340.0

35.3

9.87

0.82

201312

12.6

201303

260.0

190

33.4

31.4

Poly Medicure

459.3

1011.7

221.5

515.0

43.0

9.00

0.44

201312

105.3

201303

40.0

30

19.6

17.7

Relaxo Footwears

303.0

1818.0

110.0

315.9

31.7

8.48

0.13

201312

14.3

201303

40.0

30

5.4

4.5

Shilpa Medicare

458.6

1687.7

136.2

469.0

25.3

5.27

0.19

201312

21.9

201303

65.0

45

6.8

5.4

Swaraj Engines

721.5

896.1

431.0

772.8

13.2

4.27

4.57

201403

20.9

201303

330.0

130

84.6

32.2

2189.4 428837.8

1364.0

2384.2

23.6

8.72

1.46

201403

37.7

201403

3200.0

2200

33.9

32.3
26.2

TCS
Torrent Pharmaceuticals

577.4

9769.9

334.5

607.7

17.6

6.87

1.99

201312

66.5

201303

460.0

170

48.4

Wim Plast

620.8

372.5

293.1

664.8

12.2

2.99

1.29

201312

9.7

201303

80.0

60

17.5

16.2

Wipro

522.0 128771.5

315.3

610.5

16.5

3.95

1.42

201403

17.5

201303

350.0

300

31.0

27.5

Zodiac Clothing Company

275.0

146.7

283.0

28.3

2.20

1.27

201312

35.8

201303

35.0

30

52.7

34.4

533.2

CMP (current market price) is closing as on 30 April 2014. P/E: Price to earning ratio. P/BV: Price to book value. Consolidated financials considered wherever available.
Change in TTM RPAT: Trailing 12 months reported profit after tax over the corresponding previous period.
Companies are arranged in alphabetical order
Source: Capitaline Databases

24

May 12 25, 2014 CAPITAL MARKET

You might also like