FY11 may bring dividend bonanza for shareholders

India Inc is poised for a dividend payout increase in 2010-11, due to an expected 18 per cent growth in net profit.

According to estimates, if companies maintain the payout of 2009-10 in percentage terms, the total payment could rise to Rs 84,829 crore (Rs 848.29 billion) from Rs 75,800 crore (Rs 758 billion) - an increase of Rs 9,029 (Rs 90.29 billion).

In 2009-10, as many as 1,257 companies paid 25.3 per cent of net profit as dividend. In the first nine months of this financial year, 154 listed companies distributed Rs 19,491 crore (Rs 194.91 billion) as interim dividend, at the rate of 27.2 per cent of net profit.

The payout rise could be the steepest in the case of listed public sector undertakings (PSU) and largecap private sector companies. Since higher profits usually translate into better dividends, the data of 378 companies for the first nine months indicate that investors are in for a good income.

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In the first nine months, these companies' profits equalled the figure for the whole of last year.

Another 293 in the sample are expected to pay the same as last year or even more, as they are expected to maintain or beat last year's net profit.

In the PSU segment, banks, engineering and oil and gas sectors are expected to distribute around Rs 36,239 crore (Rs 362.39 billion), that is, 28.5 per cent of net profit.

The private sector companies, on the other hand, are expected to pay Rs 48,600 crore (Rs 486 billion) at the rate of 23.2 per cent of net profit.

Already, 14 PSUs have paid Rs 12,033 crore (Rs 120.33 billion) for 2010-11. ONGC and Coal India together paid the entire last year's dividend in the first nine months.

The largecap companies or ones listed on the Bombay Stock Exchange under the A-group are expected to pay Rs 65,700 crore (Rs 657 billion), while B-group ones may a total of Rs 12,000 crore (Rs 120 billion).

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Promoters will benefit the most from this higher dividend payout. For example, the government of India, which has a sizeable holding in listed PSUs, is expected to get Rs 26,356 crore (Rs 263.56 billion) in 2010-11.

Mukesh Ambani, who holds 41 per cent in Reliance Industries through his family and privately-held companies, may receive Rs 1,000 crore (Rs 10 billion).

Azim Premji, who holds 79.52 per cent in Wipro through a family trust, is likely to get Rs 700 crore (Rs 7 billion).

Among largecap companies, the dividend payout for 2010-11 could be considerably higher from PSU banks, Coal India and ONGC.

In the private sector, there could be higher payouts from ITC, Reliance Industries, Infosys Technologies, TCS, Bajaj Auto, ICICI Bank, Mahindra & Mahindra, Tata Motors and Tata Steel.

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Among midcap companies, those that may pay more include Cadila Healthcare, SRF, Edelweiss Capital, Biocon, Titan Industries and Thermax.

A higher dividend payout is significant, as dividend yield is one of the main factors that people consider when investing in a stock. In this list, 80 stocks have a dividend yield of over five per cent.

The yield has been calculated on the dividend paid last year. High dividend-yield stocks provide consistent returns to investors who are looking for safety rather than high returns.