HDFC has announced its intention to declare a millenium dividend. The dividend is expected to be around Rs.1.2 bn around 30% of the expected profits of Rs.4 bn. The company has an equity of Rs.1.19 bn and huge reserves of Rs.18.52 bn.
The dividend payout will help enhance its return on equity (profit after tax divided by the equity plus reserves). It also implies that the company is able to retain its profitability despite paying off almost 50% of its profits as dividend.
This could be a precursor to more companies such as Bajaj Auto declaring a millenium dividend. Bajaj has cash and investments amounting to Rs.15.18 bn whereas its net worth amount to Rs. 27.01 bn. Its return on equity in FY99 amounted to 20%. Even if the company were to pay triple the amount of dividend it paid last year i.e. approx. 300% dividend its return on net worth would increase only by 1%.
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