Rising divdends can support valuations Over the next few years, companies cannot afforred to ignore dividends, Investors are looking for higher payouts and need the assureance of a stated dividend payouts and need the assureance of a stated dividends policy. In India , though there are frw compaines that are as consistent in divned payments , even over the past five years.
The dividend yield, thoughm has steadily declined and is now at an average of 1.1 per cent of a set of 800 companies. These companies form part of the various BSe and ESE indices. NOt only has the dividend yield gone down , there is not one company in this list that has increeased divdends in line with profit growth in each of the past five years.
Among compaines in the set, thouse that have steadily increased the payout ovber ther years include a number of mutinational compaines such as a high reutn on net worht. Companies such as Astrazeneca Pharma, Nestle India, Hindustan Lever, Clariant, Pfizer , GlxoSmithkine Consumer and Cummine Indida have enhanced divdnes to deliver value to shareholder.s Thse companies do not seem to be constrained for growth, either. Some Inidian companies that have also shown the way forward include Automative Axles, Ranbaxy LAbs, Hero Honda Motors, Asian Paints. Theremax and a number of banking and non-banking finance companies. These copmpanies , too, are growing fast, and the declaration of dividends has not dampened prospects.
Companies that have held on to profits and not declared dividends include e-serve, Cranes Software, Sesa Goa, Tata motors, Moser Baer, AVV ,MICO, Aztec Software, Havells Indian, Amtek Indai nad Sterlite Industries. This is only an indcative list and inclides many more. The dividend payout ratio in the case of the indicated companies is less than 20 per cent. Investors, however, need divends to risk and they aslo need a stated divdend policy. The earnings yield ( inverse of PE ratio) is now at about 6 per cent. if the payout ratio were stepped up to 40 per cent then the divden yield would rise to about 2.5 per cent.
Expain any three other factors affecting this desicison.

Explanation

Three other factors affecting divden decision are :
(i) Amount of earnings Dividens are paid out of current and past earnings. Thus earnings is a major determinant of dividend dcision.
(ii) Stability in earnings A company having higher and stable earnings can declare higher dividends than a company of lower and unstable earnings.
(iii) Cash flow position Dividend involves an outflow of cash. Availability of enough cash is necessary for payment or declaration of dividends.