The information technology (IT) sector emerged as the biggest contributor to India Inc’s dividend pool in the past decade. The oil & gas sector had been the biggest contributor to the profit pool, showed a study conducted by Motilal Oswal.
The brokerage analysed profits and payouts for 186 companies between FY10 and FY20. Payout is the percentage of profits paid to shareholders as dividends. The remaining is retained by the company for reinvesting or acquisitions.
The average payout by the 186 companies in the past decade had been 41% and annualised returns for their stocks had been 8%.
“Sustainable payouts not only reinforce our belief of a healthy business, but also the management’s focus on maximising shareholder return by improving capital allocation,” says the brokerage, adding that dividend payouts have a huge bearing on stock performance.
According to its analysis, companies with high payout ratios (over 40%) and high earnings growth (over 12.5%) delivered annualised returns of 20%. Several companies from the IT and consumer space fell in this category.
Those with low payouts and weak earnings growth gave annualised returns of 5.7% between FY10 and FY20. Stocks with high payouts (less than 40%) but weak earnings growth (less than 12.5%) delivered average annualised returns of 8%. Many PSU stocks belong to this category. Business Standard