PSU Stocks in focus after Govt directs higher dividend payouts. Check list of best PSU stocks

The Department of Investment and public asset management (DIPAM) has issued an ‘advisory regarding consistent dividend policy by CPSEs’ dated 9th November 2020 which states as follows.

“The central public sector enterprises, especially those that pay relatively higher dividends (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 central public sector enterprises may consider paying interim dividend half-yearly”.

‘predictable and staggered’ dividend regime

The communiqué said the move would help the government to get predictable and periodic dividends before Budget estimates are firmed up.

All PSUs should consider paying at least 90 per cent of the projected annual dividend, in one or more installments as interim dividend, it was said.

It was also stated that the practice of paying the interim dividend in February or March is problematic.

“Such bunching of interim dividend payouts in February-March may compete with their cash availability for year-end payments to suppliers as well as towards advance tax,” the DIPAM advisory stated.


(Image Credit: Business Standard)

Don't stick to the minimum, pay the maximum possible

DIPAM advised PSUs to not be bound by the rule book in paying the bare minimum dividend but to strive for giving out more dividends.

“It has, however, been observed that many PSUs usually consider only paying minimum dividend according to the guidelines. PSUs are advised to strive for paying higher dividends, taking into account relevant factors like profitability, capex requirements with due leveraging, cash or reserves, and net worth,” it was stated.

Current norms prescribe PSUs to pay a minimum annual dividend of 30 per cent of profit after tax or 5 per cent of net worth, whichever is higher.

Consistent dividend policy would revive investor interest

DIPAM pointed out that investors' apathy towards PSU stocks can be changed with a higher payout.

“A consistent dividend policy would also help revive investor interest and improve market sentiment for central public sector enterprises stocks, as practicability in regular or quarterly dividend payment would attract quality investors to central public sector enterprises stocks and retain them in the hope of a future dividend,” the advisory stated.





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