SEBI mulls mandatory 'Dividend Policy' for listed companies

The Securities and Exchange Board of India (Sebi) will soon be coming out with a mandatory `dividend policy' for all listed companies that would help investors assess the profitability of the company and make informed decisions on investment.

The market regulator's decision comes in the backdrop of IPO-bound airline IndiGo doling out hefty dividend payouts to its promoters.

The 'dividend policy' does not make it obligatory for companies to declare dividends, rather it obliges them to state the reasons for paying or not paying dividend.

Under the proposed `dividend distribution policy', companies – both listed and wanting to get listed - will have to detail the circumstance under which shareholders can or cannot except a dividend payout.

This will help investors identify stocks with greater return potential and decide on investing in an initial public offer (IPO).

InterGlobe Aviation, which runs the low-cost air carrier IndiGo, has faced criticism over disclosure about a dividend payout to the promoters leading to a negative net worth for the company. This has backfired on the company.

Sebi is looking to first issue a consultation paper in this regard and the final policy would be framed after taking into account suggestions from all the stakeholders, including the government, companies and investor groups.

The new policy would seek to encourage the companies to pay dividends if their financials permit so, so that the investors can feel that they are also part of the concerned company's growth story.

This would also bring in certainty among investors that they can expect a certain portion if the company does well.

The policy may also require the companies to disclose a broad formula for dividend calculation.