cm2906-increasingdividend

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11 99MMaayy 11 22 2255,, 220011 44 CCAA PP IITTAA LL MMAA RR KK EE TT

InFocus

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 in-

crease the dividend payout ratio. This is good

news for Infosyss shareholders, particularlylong-term investors. At the current market

price, Infosys will provide a dividend yield

of 1.98%. This seems dismally low. How-

ever, it could be attractive for long-term in-

vestors. 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 in-

come 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, Infosysexpects 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 fur-

ther increase in absolute quantum of divi-

dends in the current year as well.

The payout ratio is determined as eq-

uity dividend amount upon profit after tax

minus dividend distribution tax. This ratiois expressed as percentage. The dividend

yield is calculated as dividend per share upon

share price and expressed as percentage.

Cairn Indiaannounced 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 divi-

dend distribution tax on the consolidated

profit for FY 2014. The company has in-

creased the payout ratio and also the quan-

tum of dividend.

In FY 2013, the oil and gas explora-

tion 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 com-

panies that companies that are commanding

to their book values were only selected.

Further, companies with market capitaliza-

tion 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 com-

pared with that of the immediate previous

year. Only those companies reporting in-crease 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 in-

crease in the bottom line in the latest trailing

12 months (TTM) were selected. In short,

companies with a spurt in both dividend

Stocks

Increment to shareholdersFF iiffttyyccoommppaanniieesshhaavveeiinnccrreeaasseeddtthheeddiivviiddeennddppaayyoouuttrraattiiooiinntthheellaatteessttffiinnaanncciiaallyyeeaarrThe board of directors of Infosys, the

countrys leading software exporter, has de-

cided to change its dividend policy. The com-

pany has increased the dividend payout ra-

tio to up to 40% of the post tax profit from

fiscal ended 31 March 2014 (FY 2014). Ear-

lier, the software firm had a policy of pay-ing 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 in-

creased to enhance the return to the share-

holders. A higher payout ratio will negatively

impact its earning per share (EPS) by ap-

proximately Rs 1.5 due to lower non-oper-

ating 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 inor-

ganic route, the company continues to


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2222 M Maayy 11 22 2255,, 220011 44 CCAA PP IITTAA LL MMAA RR KK EE TT

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 im-

prove upon their financials over the me-

dium 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 PolyMedicurepaid dividend of Rs 4 per share,

or 40% on face value of Rs 10. The com-

pany 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

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

The stock was available below Rs 20 be-tween 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 secu-

lar 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.

This is because companies tend to keep

their dividend policies generic with no spe-cific dividend payout ratio being commu-

nicated to shareholders. Many times, com-

panies 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 com-

panies 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 divi-

dends 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. Dur-

ing 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 differ-

ently some other companies. These compa-

nies 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 makesense 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 im-

proved, the dividend payout ratio could

witness a decline. Therefore, it is essen-

tial for companies to look at the dividend

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

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 sharehold-

ers 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 expansion-

related expenditure through internal

accrual. What is left after the exercise is

distributed as dividend to the sharehold-

ers. 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.

Under the dividend stability

policy, dividend payout ratio is pre-

determined. 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.


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InFocus

payout ratio and dividend in percentage

terms as well.

Investors should take due care of spe-

cial dividends, which is largely a one-time

affair. This is also what the hybrid approach

suggests. Maker of power equipmentsAlstom Indiaannounced a dividend of Rs

14 per share for FY 2014. This included

special dividend of Rs 4 per share on ac-

count of sale of the transport business. The

company had paid dividend of Rs 10, or

100% on face value of Rs 10, in the previ-

ous financial year that is FY 2013.

In January 2014, Alstom approved hir-

ing off its transportation system undertak-

ing to a group company Alstom Transport

India on a slump-sale basis. Slump-sale re-

fers 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 effec-tive 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 Technolo-

gies 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 in-

terim 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 thecompany had completed 25 years in busi-

nesses. The software services and prod-

ucts company has paid dividend of 70% in

each of the last three years, that is, FY2011 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 divi-

dend 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 rev-enue for the long-term investors. Inves-

tors should know the dividend policies of

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

companies before taking an investment

call. The dividend yield at the current levelcould 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. Inves-

tors need to assess valuations while taking

an investment call as these stocks have been

picked based on the dividend payout ratioand 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 CMP MARKET 52-WEEK P/E P/BV DIVIDEND TTM CHG IN YEAR DIVIDEND (%) PAYOUT (%)

CAP LOW HIGH RATIO YIELD ENDED TTM PAT END LATEST PREV. LATEST PREV.

(Rs) (Rs cr) (Rs) (Rs) (%) (%) YEAR YEAR YEAR YEAR

Accelya Kale Solutions 768.0 1146.6 368.0 831.0 14.3 11.25 9.11 201403 10.5 201306 700.0 235 156.8 104.2

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 16.2

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

Astra Microwave Products 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

Atul Auto 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


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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 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

Dhanuka Agritech 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

Divis Laboratories 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 2 01303 170.0 130 43.9 40.3

ICRA 1869.0 1869.0 938.1 1975.0 25.5 5.51 1.18 201312 25.7 201303 220.0 200 40.0 39.5

IndusInd Bank 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

Infosys 3177.2 182447.5 2222.6 3847.2 18.2 4.10 1.98 201403 13.0 201403 1260.0 840 36.0 26.7

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

J&K Bank 1679.8 8 143.4 995.0 1793.2 8.0 1.67 2.98 201312 16.7 201303 500.0 335 23.9 20.9

Kaveri Seed Company 631.1 4348.0 231.0 657.6 20.1 1 2.59 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 2 01303 175.0 170 43.2 43.0

KRBL 57.8 1360.0 19.4 63.9 6.4 1.64 1.40 201312 37.8 201303 80.0 30 14.7 10.2

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 1 818.0 110.0 315.9 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

TCS 2189.4 428837.8 1364.0 2384.2 23.6 8.72 1.46 201403 37.7 201403 3200.0 2200 33.9 32.3Torrent Pharmaceuticals 577.4 9769.9 334.5 607.7 17.6 6.87 1.99 201312 66.5 2 01303 460.0 170 48.4 26.2

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 275.0 533.2 146.7 283.0 28.3 2.20 1.27 201312 35.8 201303 35.0 30 52.7 34.4

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COMPANY CMP MARKET 52-WEEK P/E P/BV DIVIDEND TTM CHG IN YEAR DIVIDEND (%) PAYOUT (%)

CAP LOW HIGH RATIO YIELD ENDED TTM PAT END LATEST PREV. LATEST PREV.

(Rs) (Rs cr) (Rs) (Rs) (%) (%) YEAR YEAR YEAR YEAR

cm2906-increasingdividend

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