TCS tops dividend league table in FY15

Paid Rs 15,474 cr against CIL’s Rs 13,075 cr in FY15

Information technology (IT) software exporter Tata Consultancy Services (TCS) is now the largest dividend payer in India Inc, ahead of government-owned Coal India and Oil and Natural gas Corporation.

In FY15, the Tata Group company paid a dividend of Rs 15,474 crore (Rs 154.74 billlion) to shareholders, nearly two and half times higher than its payout in FY14. In comparison, Coal India cut its dividend payout by 28.6 per cent to Rs 13,075 crore (Rs 130.75 billlion); the ONGC payout was unchanged at Rs 8,128 crore (Rs 81.28 billion). The coal miner was the largest dividend payer in FY14, followed by ONGC.

This is the first time in nearly two decades that a private sector company has paid more dividend than a government enterprise. In year 1995-96, Reliance Industries was the biggest payer, ahead of ONGC and Steel Authority of India (SAIL). After that, ONGC was the top dividend payer for 15 years, followed by either Indian Oil Corporation or NTPC. The mantle passed to Coal India in FY13, as it stepped up equity dividend due to a mix of higher profitability and a little prodding from its cash-strapped promoter.

TCS’ position at the top of the league table is, however, not guaranteed, as nearly half its payout last year was in the form of a special dividend of Rs 40 a share, to celebrate its tenth year of stock market listing. So, analysts expect a cut in its payout in FY16.

In the medium to long term, however, TCS has a strong chance of dominating the dividend league table, given its higher profitability and operational difficulties faced by energy and mining companies, due to a fall in international commodity prices and moderation in economic growth. In 2014-15, TCS was the second most profitable firm, behind Reliance but ahead of ONGC and Coal India. Both ONGC and Coal India reported a dip in profit last year, unlike TCS that continues to grow, though at a lower rate.

“IT majors would remain top dividend payers, given their better earnings profile and reduced pressure on cash-rich public sector companies to pay higher dividends to help the government plug its fiscal deficit,” says Sandip Sabharwal, an independent investor and investment advisor.

“Top IT companies have done exceedingly well in the past few years and their earnings outlook is likely to improve, given the economic recovery in North America and Western Europe. This will translate into higher dividend payout by top IT companies, including TCS,” says Devang Mehta, senior vice-president and head of equity sales at Anand Rathi Financial Services.

In the past five years, TCS’ dividend payout has quadrupled, growing at a compounded annual 31.6 per cent. Tata Sons, which owns 73.9 per cent in TCS, has been the single biggest beneficiary of the dividend bonanza from its crown jewel. It will earn Rs 11,400 crore as divided income from TCS in FY15, helping it finance the growth plans of other group companies.

IT majors were the top dividend payers in FY16. The big three, all part of the benchmark Sensex on the BSE exchange (TCS, Infosys and Wipro) distributed Rs 25,243 crore (Rs 252.43 billion) worth of equity dividends to their shareholders in FY15, more than twice their payout in FY14.

These companies accounted for nearly a third (31 per cent) of the combined dividend paid by all Sensex companies last year, compared to 15.8 per cent in FY14. Excluding IT, the dividend payout by Sensex companies was down 10.9 per cent year-on-year in FY15.