Corporate India now pays more cash to its shareholders by way of equity dividends and share buybacks than it reinvests in its business for future growth, a report by Business Standard stated.
In 2021-22 (FY22), listed non-financial companies returned a record ₹3.05 lakh crore to their shareholders through dividends and share buybacks, but invested only ₹1.12 lakh crore in fixed assets, the report pointed out.
Annual investment in fixed assets in FY22 declined 49.1 percent year-on-year (YoY), while total payout to shareholders was up 18.8 percent YoY, it further noted.
As per BS, FY22 was the second consecutive year when shareholder payout exceeded annual investment in fixed assets. In 2020-21 (FY21), listed companies in the Business Standard (BS) sample had paid ₹2.56 lakh crore to their shareholders, while they had invested ₹2.2 lakh crore in fixed assets during the year.
BS informs that the analysis is based on the annual profit/loss and balance sheet of a common sample of 955 companies that are part of the BSE 500, BSE MidCap, and the BSE SmallCap indices. The sample excludes banks, non-banking financial companies, insurance, and stock and commodity brokers (BSFI).
Analysts told BS that they don’t expect the trend to change anytime soon, given the various macroeconomic headwinds that corporates face right now.
“Payout to shareholders will remain high even in the current year. There is still a lot of uncertainty in the domestic and global economy with historically high volatility in revenue growth,” Dhananjay Sinha, of JM Finance told the market daily.
This comes on the back of a 63.5 percent YoY rise in the combined net profit of non-financial companies in the BS sample to an all-time high of ₹7.18 lakh crore in FY22, up from ₹4.39 lakh crore a year ago, highlighted the report. In comparison, the companies’ combined net sales rose 31.1 percent YoY to ₹87 lakh crore in FY22.
"As a result, the total dividend payout in FY22 was 42.4 percent of corporate profits in FY22, while fresh capex was 15.6 percent of the earnings in FY22. In comparison, the dividend payout ratio was 58.4 percent in FY21, while half the earnings were spent on fresh capex," the report explained.
Besides paying higher dividends to their shareholders, companies also used the earnings boom to increase their cash reserves and deleverage their balance sheet, added BS.
