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Companies pay higher dividends to boost investor morale

This article was posted on May 27, 2009 and is filed under Stock News

MUMBAI: Contrary to fears that companies will tighten purse strings to conserve cash in an economic slowdown, a substantial number of them have increased dividend payouts to shareholders, with some of them doing so despite posting flat or lower profits, analysis by ET shows.

Data available for 377 companies shows that 131 of them have increased dividend for the year ended March 2009 or December 2008. The list also includes a few companies where the data is available for the year ended September 2008 or June 2008.

This is seen as some consolation to investors, given the bruising capital losses they have suffered because of last year’s stock market turmoil.

EID Parry, Coromandel Fertilisers, Stovec Industries, VST Industries, Crisil, ICI India, Sulzer India, Nestle India and Clariant Chemicals are among the companies, which paid the highest dividend. “If companies are paying higher dividend, it is a positive trend, as it would help in boosting morale of shareholders, particularly those who have been holding shares with a long-term point of view,” said an analyst with a Mumbai-based broking house.

Sugar company EID Parry paid out 1000% dividend for 2008-09, compared with 25% previous year. On a standalone basis, the company recorded a bumper profit of Rs 692 crore on sales of Rs 812 crore, compared with a loss of Rs 17 crore on sales of Rs 651 crore in 2007-08. Its earnings were boosted by large extraordinary income of Rs 750 crore earned in the form of a profit on sale of investments.

Coromandel Fertilisers hiked dividend from 175% to 500% last fiscal. The company’s sales jumped 150% to Rs 9,375 crore, while its net profit rose by 137% to Rs 496 crore, thanks to exceptional income of Rs 159 crore. Some analysts are of the view that even if a company pays exceptionally high dividend in a particularly year, factors such as the industry it operates in, the management’s background, cash flows and past dividend record should be considered before an investment call is made. “It is important to see if a company is paying dividend out of normal profit or profit earned from extraordinary sources. In normal circumstances, higher dividend shows the management has a good confidence in prospects of the company,” said Anagram Stock Broking head of research VK Sharma. The broking firm expects public sector companies, including banks, to maintain their dividend track records in the coming years.

The list of dividend high-flyers, also includes multinational companies Sulzer India, Nestle India and Clariant Chemicals. The companies paid dividends of 350%, 425% and 190%, respectively, in the year ended December 2008, compared with 100%, 330% and 100%, respectively, in the previous year. In these cases, point out analysts, foreign promoters would be the major beneficiaries due to their large stakes in companies.

source: Economictimes

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