Moneycontrol Pro Panorama | Have dividends from IT companies peaked?

Infosys expects to continue its policy of returning around 85 percent of its free cash flow cumulatively over a five-year period through dividends and share buybacks.

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IT companies are in the limelight for their large payouts to CEOs and investors. TCS and Infosys returned Rs 45,588 crore and Rs 17,814 crore, respectively, in FY25 to shareholders through dividends. Their CEOs also received hefty pay packages for the year.

Yet, as investors look ahead, the question one needs to ask is if the companies and the sector in general can maintain the high payouts made in recent years. The current soft demand environment casts some doubt on that prospect.

Some signs of moderation in investor payouts are already visible. The total shareholder payout at TCS is 3.9 percent lower in FY25 compared to FY24. Infosys’s dividend of Rs 43 per equity share in FY25 is lower than Rs 46 in FY24. Note that Infosys’s FY24 dividend stated here included a special dividend of Rs 8.

Infosys expects to continue its policy of returning around 85 percent of its free cash flow cumulatively over a five-year period through dividends and share buybacks. TCS also has a track record of consistently paying dividends.

Even so, one cannot be certain if these companies can replicate the post-COVID bump-up in investor payouts in the near term. From less than Rs 30,000 crore in FY19, total annual shareholder payouts at TCS increased to about Rs 47,000 crore in FY24 before moderating in FY25.

Of course, the absolute payout ratios are still healthy and companies intend to regularly return money to shareholders. Still, with revenue growth slowing significantly from COVID boom years, investors would do well to temper their return expectations.

From more than 10 percent in FY23, constant currency revenue growth rates at large IT companies dropped to low single digits in FY24 and FY25. Expectations are that companies will see muted revenue growth for the third consecutive year in FY26.

Amid tariffs uncertainty and global economic slowdown, clients in key industry segments have turned cautious on investing fresh money in new projects. While the recent volatility in the US dollar poses additional headwinds, IT companies are trying to control costs by capping hiring and salary hikes.

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