In an attempt to attract investor interest and to earn quarterly interim dividends amid revenue crunch, Govt of India has asked the rich Central Public Sector Enterprises(CPSE) to payout quarterly dividends.
What are CPSEs?
Central public sector enterprises (CPSEs) are those companies in which the direct holding of the Central Government or other CPSEs is 51% or more. Obvious to say, the major decision maker will be the Government of India.
A shift in dividend policy
It seems like the time has come for a shift in the dividend policy of CPSEs. Goverment of India wants the rich CPSEs to start paying out more frequent dividends. They were also asked to consider paying out more share of profits to their shareholders as dividend.
In the advisory sent by the department of investment and public asset management (DIPAM) to the chief executives of all CPSEs, it was advised that CPSEs who are paying out higher dividends may consider paying them at the end of each quarterly results. Others though, can consider half yearly payments.
The Govt guidelines
The present Goverment guidelines prescribe the state-owned firms to pay a minimal annual dividend of 30% of Profit After Tax (PAT) or 5% of net worth, whichever is higher.
With companies sticking to the bare minimum when it comes to dividend payouts, CPSEs are now advised to strive paying higher dividends taking into account relevant factors like profitability, capex requirements with due leveraging, cash or reserves and net worth.
It was advised further that only those CPSEs without any possibility of dividend payouts according to minimum prescribed norms can skip the advisory and continue paying dividends anually.
Bottom line:Amid Government's money crunch and depleting trust among investors to hold public sector companies, this seems like a smart move from DIPAM.