SEBI directs Top 500 listed companies to have Dividend Distribution Policy

To address the increasing concerns amongst investors on companies not distributing extra profits between investors, SEBI, capital market regulator, cleared a proposal directing the Top 500 listed companies to have a 'dividend distribution policy' in place.

Top 500 listed companies based on market capitalisation will now have to formulate and declare their dividend distribution policy in their annual reports and also on their website. The move is seen as investor friendly since it will allow investors to estimate the return on investments for their investments and bring in some predictability in returns.

Companies will be expected to explain in detail the usage of the retained earnings and also provide circumstances under which the company will not be able to distribute dividends. Also any aberration from normal dividend distribution policy shall need an explanation from the company.

SEBI was quick to explain that it does not intend to intrude in the financial decision making of any company but is merely focusing on the disclosure made by the listed companies, with the aim of  supporting investors. In countries like Brazil, Greece,Venezuela,Columbia and Chile the dividend distribution is mandatory for profit making companies contingent on profit sizes.

While the move does seem investor friendly, such directives may not be welcomed by corporates as the directives may put some pressure on optimal utilisation of retained earnings as the flexibility of using the same may get restricted.