ONE OF THE MOST IMPORTANT IS AS UNDER: Mandatory dividends by companies Investors put in money in capital market for better yield. The world's renowned economists suggest criteria to invest in the capital market for getting better yield.
This criterion mainly revolves round the sound repute of the companies which are used to maintain the payment of reasonable dividend for the last many years. Here the percentage rate of dividend yield should be higher than the interest and inflation rate.
Unfortunately there is no such provision in the Companies Ordinance 1984 of Pakistan under which an investor gets better investment yield on his investment from companies which are earning record bumper profits.
From the plain reading of sections 248 and 249 of the Companies Ordinance 1984, it is crystal clear that there is no compulsion for companies to pay good dividends out of earned profits. Especially the textile sector earns windfall profits but either it doesn't pay or pay a meagre dividend to their shareholders. The annual yield comes to 0 or 1% on investment. They take a simple plea that due to expansion programme, good dividend couldn't be distributed. This is a lame excuse as all other companies distribute reasonable dividend and bonuses to their shareholders along with their expansion programmes.
It is also interesting that the companies, which avoid to pay good dividends to their shareholders, are paying huge amount under the head of "financial charges". There are a few companies, out of 661, which distribute most of their profits to their shareholders.
Blue Chip and multinational companies like PSO, PTC, Fauji Fertilisers, Engro, Glaxo and Shell etc are earning record profits and are distributing handsome dividends to their shareholders for the last many years. The remaining major portion of listed companies, in spite of good profits, pay a nominal dividend to their shareholders just to avoid to be put on the defaulter counters. The highly qualified management of these companies is fully aware about all aspects.
In spite of distribution of mostly profits to their shareholders, all the above companies are expanding continuously and boosting their business. It is interesting to note that in 1999, on strong demand from small investors, a section namely 12-9(A) was inserted in Income Tax Ordinance 1979 (Repealed) after approval from various chambers and federations. According to this law, all companies having 50% reserves of paid-up capital were bound to distribute 40% of their net profits among their shareholders.
All textile companies started to pay handsome dividend to their shareholders. Along with the distribution of the dividends, these companies never boosted their business through perfect planning for expansion. Evidently there were not any shocks to them.
Small investors were quite satisfied but textile mill owners were reluctant to continue the practice and finally they succeeded in getting this law abolished. This fact is notable that textile mills having very small capitals in a few crores, are earning 3 to four times of their capital but are not ready to pay any dividend to their shareholders under the umbrella of companies ordinance. Recently textile and sugar mills have announced very nominal dividends in spite of bumper profits.
The situation is very depressing for an investor. Under the circumstances, the commission is requested to make suitable amendments in the law under which companies will be bound to distribute 40% of their net profits.