Indian companies paid shareholders a record ₹5.13 trillion in dividends in fiscal year 2026 (FY26), but this increase masks a striking shift: dividends grew slower than profits. The payout ratio fell to a 12-year low, raising questions about whether corporate India is finally retaining more cash for investment. Mint explains.
What’s happening with dividend payouts?
Dividend payouts by BSE 500 companies rose 8.2% year-on-year to ₹5.13 trillion in FY26, from ₹4.74 trillion in FY25. But dividend growth has slowed: it was 11.9% in FY25 and 9.6% in FY24. More significantly, dividends as a share of net profit fell to 27.6% in FY26 from 30.4% in FY25 and 36.5% in FY23. The ratio is now at its lowest in 12 years, substantially below its 12-year average of about 35.5%.
The headline, therefore, is slightly deceptive: India Inc is paying more dividends in rupee terms, but returning a smaller proportion of the profits it earns overall.
Have investors got less money?
Investors did not get less money in absolute terms. They received ₹5.13 trillion in dividends in FY26, the highest in the period covered by Mint’s analysis. But the growth in dividends has lagged the growth in profits. A company can increase its dividend while reducing its payout ratio if profits grow faster than the dividend. That is what has happened across much of corporate India.
The BSE 500 payout ratio fell to 27.6% in FY26 from 30.4% in FY25 and 36.5% in FY23, after touching 50.9% in FY20. Companies are paying shareholders more, but keeping an even bigger share of what they earn.
Which sectors paid out more, and who squeezed?
IT remains among the most generous dividend-paying sectors because its model generates substantial cash without comparable capital expenditure. The six biggest payers accounted for about 26% of BSE 500 dividends, with Tata Consultancy Services (TCS) alone contributing nearly 8%. This contrasts with sectors entering an investment cycle. Power accounted for 36% of incremental listed capex between FY23 and FY26, followed by automobiles at 9% and telecom at 8%. Investment needs encourage profit retention.
Why did companies increase payouts until now?
The answer lies partly in the long absence of a broad-based private-sector capex cycle. After the prolonged deleveraging cycle of 2013-20, companies spent years repairing balance sheets rather than adding capacity. Even after profits recovered strongly following the covid-19 pandemic, investment did not immediately follow. Ambit Capital says corporate debt-to-equity ratios fell from about 68% in FY20 to 39% in FY25. With risk appetite and capex subdued, companies had surplus cash and increasingly returned it through dividends and buybacks.
High payouts, therefore, reflected not just shareholder friendliness but a lack of sufficiently attractive investment opportunities. This encouraged distributions.
If not paying dividends, how are companies using the spare cash?
Some cash is going into capex, buybacks and stronger balance sheets, but not yet through a broad-based investment boom. Ambit’s analysis of 3,243 listed companies shows corporate capex rising at a 13.5% CAGR during FY23-26. Yet the top 10 corporate houses accounted for about 61% of listed capex.
Ambit says companies have favoured “dividends and buybacks over greenfield expansion” amid stagnant capacity utilisation and uncertain demand. Project announcements are only 15% of GDP, versus 35% during FY03-12. The lower payout ratio may signal greater retention, but whether that becomes sustained investment remains the question.