The shareholders always look out for dividend payout ratio, which is an important metric as it indicates what portion of profit is being returned to shareholders in the form of dividends. The dividend payout ratio is significant for shareholders for several reasons:
Income Flow: For shareholders, dividends represent income flow from their investment in the company. A higher dividend payout ratio means that a larger part of the company's profit is being distributed to shareholders.
Indication of Sound Financial Health: A consistent or increasing dividend payout ratio can be seen as a positive indication of a company's financial health and stability. It is also seen as confidence in company's ability to generate profits and willingness to distribute those profits with shareholders.
Return on Investment: Apart from likely appreciation, investment in companies is done with expectation of receiving regular returns. A higher dividend payout ratio indicates shareholders receive a larger part of the company's earnings, enhancing their return on investment.
Investor Preference: Some investors seek regular cash inflows or stable returns, may prefer companies with higher dividend payout ratios. These companies are often seen as established ones apart from being shareholder friendly.
Shareholder Alignment: A company's decision regarding its dividend payout ratio reflects its management's attitude toward rewarding shareholder. Companies that prefer rewarding shareholders by way of higher dividends may be more aligned with shareholder interests.
Let's take a look at 5 PSBs and 5 PrSBs dividend payout ratio for FY23-24 in the Banking sector.
Public Sector Banks
Name of the Bank | Equity Capital (Rs in Cr) | Face Value of Share | Net Profit (Rs in Cr) | Earnings per Share | Dividend per Share | Payout Ratio |
Bank of Baroda | 1,036 | 2.00 | 17,789 | 34.40 | 7.60 | 22.10 |
Canara Bank | 1,814 | 10.00 | 14,554 | 80.23 | 16.10 | 20.07 |
Punjab National Bank | 2,202 | 2.00 | 8,245 | 7.49 | 1.50 | 20.03 |
State Bank of India | 892 | 1.00 | 61,077 | 68.44 | 13.70 | 20.02 |
Union Bank of India | 7,634 | 10.00 | 13,648 | 18.95 | 3.60 | 19.00 |
Private Sector Banks
Name of the Bank | Equity Capital (Rs in Cr) | Face Value of Share | Net Profit (Rs in Cr) | Earnings per Share (EPS) | Dividend per Share | Payout Ratio |
Axis Bank | 617 | 2.00 | 24,861 | 80.67 | 1.00 | 1.24 |
HDFC Bank | 760 | 1.00 | 60,812 | 85.83 | 19.50 | 22.72 |
ICICI Bank | 1,405 | 2.00 | 40,888 | 58.38 | 10.00 | 17.13 |
IndusInd Bank | 778 | 10.00 | 8,950 | 115.19 | 16.50 | 14.32 |
Kotak bank | 994 | 5.00 | 17,977 | 91.45 | 2.00 | 2.17 |
On perusal of above data, it could be construed that all PSBs have rewarded shareholders with dividend payout range narrowing in the band from 19% to 22%. In comparison, PrSBs have a much wider range from 1% to almost 23%. Axis Bank payout ratio of 1.24% turns out to be a laggard among the 10 Banks in consideration, closely followed by Kotak Bank with marginally higher payout ratio of 2.17%. As regards leaders, HDFC Bank with highest payout ratio of 22.72% emerges as leader, closely followed by Bank of Baroda with payout ratio of 22.10%. In conclusion, PSBs have rewarded shareholders very well, whereas PrSBs turned out to be inconsistent with wider payout range.
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