Dividends:

Room for a larger payout

This is the first of two special reports on dividends.

Companies that pay dividends demonstrate i. confidence in their ability to generate growing earnings ii. that its earnings are real and iii. admit, to an extent, that businesses cannot grow indefinitely, and that they need to start returning money to shareholders. Investors like getting dividends: they can spend the money to purchase more shares or spend it on something else. And if they are institutional investors, they themselves can dividend this out. Consequently dividends play an important role for most shareholders, including institutional investors, who consider this critical in their stock selection process.

Companies are showing limited enthusiasm to invest and are sitting on a larger cash-pile than before. Investors have passively pocketed whatever dividend they received. There is a compelling case for them to ask and for companies to pay more.

IiAS studied the dividend payout data of S&P BSE500 companies for the five year period between 2007-08 and 2011-12. The general patterns and trends observed in our analysis are discussed in the first of two special reports. In the second report we have identified companies from the S&P BSE200 that can pay higher dividends.

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