As Indian economy staring at a revenue crunch, the government has asked rich state-owned firms [ CPSE – Central public sector enterprises]  to start paying dividends on a quarterly basis, even as it has demanded higher share from profits of all its companies.
Aiming for a ‘predictable and staggered’ dividend regime, the government has further told state-owned firms not to go by the rule book and pay the bare minimum dividend, but to work on increasing payouts.
The government guidelines prescribe state-owned firms to pay a minimum annual dividend of 30 per cent of PAT or 5 per cent of net worth, whichever is higher.
“It has, however, been observed that many CPSEs usually consider only paying minimum dividend as per guidelines.
CPSEs are advised to strive paying higher dividends taking into account relevant factors like profitability, capex requirements with due leveraging, cash or reserves and net worth,” the advisory stated.
DIPAM further advised that only CPSEs without any “possibility” of dividend payout, according to the minimum prescribed norms, can pay interim dividend annually during October or November each year based on projected profit after tax, with the declaration of second quarterly results.
“A consistent dividend policy would also help revive investor interest and improve market sentiment for CPSE stocks, as practicability in regular or quarterly dividend payment would attract quality investors to CPSE stocks and retain them in the hope of a future dividend,” the DIPAM’s fresh advisory said.
“The CPSEs especially companies that pay relatively higher dividend (100 per cent dividend or Rs 10 per share as the case may be) may consider paying interim dividend every quarter after quarterly results.
Other CPSEs may consider paying interim dividend usually on half-yearly basis,” the ‘advisory regarding consistent dividend policy by CPSEs’ dated November 9 stated.
The communique, sent by the department of investment and public asset management (DIPAM) to the chief executives of all CPSEs on November 9, said that the move would help the government to get predictable and periodic dividends as interim dividends before the budget estimates are firmed up.
All state-owned firms should consider paying at least 90 per cent of the projected annual dividend, in one or more installments as interim dividend, according to DIPAM.
Most state-owned firms pay interim dividend in February or March of a year at present.
“Such bunching of interim dividend payouts by CPSEs in February-March may compete with their cash availability for year-end payments to suppliers as well as towards advance tax,” the DIPAM explained the rationale behind the move in the advisory.