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Dividend tax removal to boost EPS, says CLSA

The new dividend tax regime may encourage dividend-receiving companies to make better payouts, the brokerage said.

ET Bureau|
Last Updated: Feb 05, 2020, 08.05 AM IST
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Post-tax dividend income for such companies will be 25 per cent higher under this new regime.
Mumbai: Companies with a high share of dividend income from subsidiaries, associates and investments will see an increase in their net profit in the new tax system if they payout what they receive to the shareholders, said CLSA.

The new dividend tax regime may encourage dividend-receiving companies to make better payouts, the brokerage said.

“This current regime should encourage any company with dividend income and no big cash needs to pass on this income as dividends to its shareholders,” said CLSA in a client note. Bharti Infratel, Oil India, BPCL, IOC, ICICI Bank, L&T, GAIL, ONGC and HDFC could be the top gainers of the tax rule change, it said.

Post-tax dividend income for such companies will be 25 per cent higher under this new regime. Dividend income at 8 per cent of profit after tax could see a 2 per cent higher earnings per share, said CLSA.

CLSA said the companies paying dividends less than their dividend income could see a cut in profit after tax. This may encourage payouts and push up India’s dividend yield which is amongst the lowest in Asia, said CLSA.

“If a company chooses to pay no dividend to its shareholders it will see a cut in its PAT equivalent to 6 per cent of the amount of its dividend income,” said CLSA.

The brokerage said insurance companies have the highest share of profit after tax from dividends but will need to balance the impact on net worth and benefit from profit after tax when raising payouts.
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