73 firms have reserves to double dividend

Study asks shareholders to frame a cash retention policy for managements

Seventy-three of the S&P BSE 500 companies who increased their dividend could have doubled it, based on their FY15 results.

A 2014 dividend study based on FY13 fnancials by proxy advisory firm Institutional Investor Advisory Services India Limited (IiAS) identified 77 companies that had the potential to increase their dividend payouts. These companies had held an aggregate cash surplus estimated at Rs 36,000 crore.

Following the study, said IiAS, these companies increased their dividend by 73 per cent from Rs 22,400 crore in FY13 to Rs 38,800 crore in FY15. The aggregate net profit of these 77 companies increased by 26 per cent from Rs 81,000 crore to Rs 1,02,000 crore over the FY13 to FY15 period.

Of these 77 companies, 45 not only increased dividends (in absolute amount) but also increased dividend payout ratio; 19 companies increa-sed dividends in absolute amounts but not commensurate with the growth in their profits. As a result, dividend payout ratios de-clined between FY13 and FY15 for these companies.

For example the study said three companies — ISGEC Heavy Engineering Ltd, Bosch Ltd and Eicher Motors Ltd — can pay dividends of over Rs 100 per share without any liquidity stress and five companies — Bharat Electronics Ltd, Force Motors Ltd, HCL Technologies Ltd, Maruti Suzuki India Ltd and Shree Cement Ltd — can pay dividend between Rs 50 and Rs 100 per share.

Oracle Financial Servi-ces Software Ltd paid Rs 663 crore in dividends in FY15 and didn’t pay any dividend in FY13. Just Dial Ltd and Jubilant Foodworks Ltd also began paying dividends after IiAS’ 2014 study.

In case of Whirlpool of India Limited, it has not paid dividend in the past three years and IiAS estimates that Whirlpool has Rs 200 crore in excess distributable cash.

According to IiAS study, “Whirlpool’s cash accumulation must be seen in light of the fact that it pays out royalty to its parent Whirlpool Corp, USA and that the parent company does pay dividend to its own shareholders. Whirl-pool’s shareholders must raise this differential tre-atment with the company.”

“Indian companies are stockpiling cash and must return it to shareholders if it does not have productive use for it,” it said, adding that companies disclose a retention policy – how much money they want to retain and why, rather than a dividend policy to provide investors clarity on the planned use of cash generated.