TCS announces dividends totalling Rs. 75 per share in Q3

India’s largest software and IT company, TCS (Tata Consultancy Services), reported its Q3 earnings on 09th January 2023. Top line growth at 19.1% was better than expected. However, there was pressure on the attrition and the margin front. What stood about the results was the hefty dividend announcement by TCS. The company announced a special interim dividend of Rs. 75 per share for financial year FY23. January 17th 2023 has been fixed as the record date for the payment of dividend. The dividend has to paid within 60 days of the dividend declaration and in this case the dividends rare expected to be paid out on 03rd February 2023. This is one of the biggest dividend declarations done by TCS in its history.

The dividend will be paid to those shareholders, whose name appear in the register of shareholders of the company as on the record date of 17th January, 2023. Based on the list of names appearing on the register on the record date, the dividend will be paid out to the shareholders. Since the names must appear in the register of shareholders on 17th of January, investors can buy such shares latest up to T-2 days (2 trading days prior to record date) to be eligible for the dividend. In this case, 17th of January is Tuesday, so the shares must be purchased latest by Friday 13th January, so that it can come into the demat account of the investor by end of 17th January. That would make shareholders eligible for dividend.

As per the statement made by the company as part of the results announcement, the company announced that the Board of Directors had decided to declare an interim regular dividend of Rs. 8 per share and an interim special dividend of Rs. 67 per share, taking the total dividend for the quarter to Rs. 75 per share. The company has a face value of Rs. 1 per share. The third interim dividend of Rs. 75 per share, including the special dividend, will be paid out to the shareholders on 03rds February. For the quarter ended December 2022, TCS had announced 11% growth in net profits to Rs. 10,846 crore and a 19% growth in revenues to Rs. 58,229 crore. Revenues were up 13.5% in constant currency terms in the quarter.

The question is whether this would qualify as special dividend from an F&O perspective. As per SEBI regulations on classification of extraordinary dividends, any payout would qualify as extraordinary dividends if the cash dividend paid out exceeds 2% of the market price. At the current price range of Rs. 3,200 to Rs. 3,300, the dividend of Rs. 75 per share is well above 2% of the stock price. That means, this would qualify as extraordinary dividends. What does that mean? It will have implications for the adjustment of futures and options contracts on the ex-date. As we are aware 13th January is the last cum-date for the special dividend and 16ths January would be the ex-date, when the price goes ex-dividend.

Since this is an extraordinary dividend, there will be adjustment done for the futures and for options contracts. In the case of futures contracts, the future holding price would be adjusted by the dividend amount. For instance, if you are long on TCS futures at Rs. 3,300, then on the ex-date, you would be long on TCS futures at an effective price of Rs. 3,225. Similarly, if you have a call option on TCS at the strike price of Rs. 3,300, then that strike gets automatically modified to Rs. 3,225 strike. These adjustments are entailed due to it being a special dividend in this case.