What Vedanta Shifting Funds To Profit And Loss Account Means For Investors

Vedanta Ltd. has received approval from its shareholders to move an amount of Rs 12,857 crore from its general reserve to the profit and loss account. This might seem to be a simple accounting entry as it moves money from one head to the other under the overall ambit of shareholder's funds, but it has significant implications for investors.

Dividends can be declared from the free reserves of the company, and the amount in the P&L account qualifies as a free reserve. This can thus be used to declare dividends. What that means is that shareholders could get another payout in the form of a special dividend from the additional amount now transferred to the P&L account.

Vedanta has already declared two interim dividends after April 2022:

• The first of Rs 31.50 per share had an ex-dividend date in May 2022.

• The second of Rs 19.5 per share had an ex-dividend date in July 2022.

This adds up to Rs 50 per share. 

If another dividend is declared, that would raise the total dividend per share even further. This pushes up the dividend yield on the stock, which even at the current market price is high due to the large dividends declared this year.

However, investors need to know that past dividends might not be maintained at the same level as it depends on the profit for the year. Similarly, special dividends, as the name suggests, are one-time payments based on specific developments which might not be there every year.

(Arnav Pandya is founder of Moneyeduschool.)