IT biggies shower dividends as others struggle
Oct 20 2013 , Mumbai
Big firms share bounty with you and me before taking out cash
Services and HCL Technologies, among others. Most of them have announced fresh dividends along with their quarterly financial performance, making it third dividend distribution this calendar.
Infosys, TCS, HCL Technologies and MindTree have announced their third dividend distribution in 2013 along with their second quarter results.
Regular payment of dividends to shareholders, combined with the IT bluechip stocks touching new highs, have come as a windfall for retail shareholders, enriched by the handsome appreciation of capital deployed.
Only a few companies in other sectors have matched the big IT firms in profit sharing with their shareholders, even as most are struggling to pay dividends this financial year.
For instance, Hindustan Unilever (HUL) has been quite magnanimous to its shareholders, announcing its second dividend this financial year, after paying dividends three times last year.
Nestle too has announced a second interim dividend on the back of three dividend announcements last year. ITC, however, has distributed dividends only once a year over the past three years.
The same has not been the case for the shareholders of companies in other sectors, despite some of them making substantial profits.
Many of them have been withholding dividend distribution, citing pressing need for cash to fund operating costs and meet capital requirement for business growth.
Last Friday, finance minister P Chidambaram asked public sector companies to stick to their investment plans of Rs 1.4 lakh crore or shell out higher dividend. The finance minister went on to say that in no case would the government accept lesser dividend than last year.
Kishore P Ostwal, chairman and managing director, CNI Research, said, “Besides IT, some FMCG and multinational companies are distributing dividends because their promoters have no choice but to take home the profits.”
“Big companies are able to give dividend because they have economy of scale, but small-cap and mid-cap companies are not giving dividends because of the hefty dividend distribution tax of 15 per cent, besides paying 33 per cent tax on earnings, the dividend distribution tax works like double taxation,” Ostwal said.
For the same reason, some companies prefer giving bonus shares to their shareholders, rather than share dividends, which is a huge burden on their cash flows. Recently, shareholders of at least two troubled companies — Gitanjali Gems and Financial Technologies — were denied their deserved dividend even after the boards had approved it and subsequently made public announcements. Several shareholders, who bought shares of these companies after the dividend announcements, have been disappointed when they companies eventually withdrew dividends “in the larger interest of the company”.
Jimmy Patel, chief executive officer of Quantum Mutual Fund, said, “We study whether the dividend distribution would impact the cash flow of the company and in general, it has a negative impact on the expansion/growth of the company. But mutual funds being minority investors may not be able to get the desired outcome on a particular resolution despite voting the way we want.”