Companies are scurrying to pay out advance dividends for the next year to its investors, a phenomenon rarely seen during this time of the year.
Companies are scurrying to pay out advance dividends for the next year to its investors, a phenomenon rarely seen during this time of the year.
The reason? Finance Minister Arun Jaitley's budgetary announcement of taxing dividend payouts of over Rs 10 lakh to individuals and HUFs at a 10% rate of interest.
So far, it is companies that have been taxed for dividend payouts by way of the Dividend Distribution Tax at 20.36% (including surcharge and cess). However, the proposed tax on dividend receivables of over Rs 10 lakh from April 1, have had companies calling for meetings and announcing dividends to help save its investors from being charged.
According to a report in Business Standard, there are about 70 companies that have called meetings to announce dividend payments to its investors. These include, Divi's Laboratories, Piramal Enterprises, Bajaj Auto, and so on.
The Hindu Business Line report says that since the announcement, there has been a spike in the demand for dividend stocks, with nearly 16 of the 50 stocks taken as a sample witnessing a surge of 8-33% in prices. At the same time, the stock markets have also witnessed two consecutive strong sessions, adding as much as Rs 4 lakh crore to investors' kitties due to the back-to-back rallies.
According to the report, Suven Life Sciences, Allcargo Logistics, Zydus Wellness, Navneet Education, Godrej Industries, are some of the other companies that have announced their intention to pay dividends before April 1.
The Hindu BusinessLine report also found that compared to the rush to announce dividend payments in March this year, last year only 27 companies had declared dividends in the month.
A similar trend was seen in the market and the industry after the 2007 budget announcement, which had proposed hiking DDT to 15% from the then prevalent 12.5%.
According to the Hindu BusinessLine report, about 187 companies had declared dividends at that time. This is against 22 companies in the year-ago period and 14 companies in year after.
The Business Standard report says that companies with high promoters' stakes can be expected to payout lower dividends from April 1, to help save their owners from the 10% tax.
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