Funding newer ventures Tata Sons' priority

Tata Sons has seen a remarkable surge in net profit in recent years, yet the group's holding company has channeled these gains predominantly into new ventures, rather than opting for higher dividend payouts.

- KRISHNA KANT

The primary beneficiaries of the dividends remain Tata Trusts, which hold a 66 per cent stake in Tata Sons, and the Shapoorji Pallonji Group. The Trusts, in turn, use these proceeds to fund its wide array of philanthropic initiatives.

In FY24, Tata Sons distributed 4.1 per cent of its net profit as dividend to its shareholders, slightly above the 3.2 per cent payout ratio recorded in FY23. This figure, however, is notably low when set against the company's decade-long average payout ratio of 15 per cent and pales in comparison to the approximately 35 per cent payout ratio of companies in the Sensex over the same period.

Over the past 10 years, Tata Sons' stand-alone net profit has grown at a compound annual rate of 27.5 per cent, leaping from ₹3,053 crore in FY14 to ₹34,654 crore in FY24. During this time, dividend payouts have increased from ₹323.3 crore to ₹1,414.4 crore, reflecting a CAGR of 15.9 per cent. Tata Sons skipped dividend payments in FY20 amid the Covid-19 pandemic, despite posting a 134 per cent year-on-year growth in net profit.

Following the pandemic, however, Tata Sons has adjusted its dividend policy in alignment with rising earnings. Since FY21, dividends have more than trebled in absolute terms, increasing from ₹404.1 crore to ₹1,414.4 crore in FY24 -- a CAGR of 51.8 per cent. In comparison, net profit during this period soared more than fivefold, with a CAGR of 74.6 per cent, rising from ₹6,511.6 crore in FY21.

At that point, in an interview to a foreign newspaper, Ratan Tata had said that Noel Tata lacked experience.