"Second Salary" Paid Regularly... What Are the Tax-Exempt Dividend Stocks Starting Next Year?

Financial Holding Companies Move Toward "Tax-Exempt Dividends"
Stock Prices Still Undervalued... Investment Appeal on the Rise
"Capital Reduction Dividends" Anticipated Even More Than Separate Taxation on Dividend Income
No Dividend Income Tax Un

With tax benefits on dividend income set to be fully implemented from next year, analysts predict that bank stocks will become “national stocks” favored by the general public. In particular, it is expected that the already high shareholder return rates will rise even further, raising expectations for additional stock price increases.

A reduction dividend is a method where a company reduces its capital reserve and distributes cash to shareholders. Unlike regular dividends, dividend income tax is not imposed. Getty Images

According to the financial investment industry on October 13, separate taxation on dividend income is expected to be introduced from next year for major financial holding companies, including KB Financial Group, Shinhan Financial Group, Hana Financial Group, Industrial Bank of Korea, and KakaoBank. Once this system is applied, dividend income will not be included in comprehensive income, potentially reducing the overall tax burden.

What is anticipated even more than the separate taxation of dividend income is the “reduction dividend.” A reduction dividend is a method where a company reduces its capital reserve and distributes cash to shareholders. Unlike regular dividends, dividend income tax is not imposed.

Woori Financial Group will be the first in the industry to implement reduction dividends, granting tax exemption benefits on dividend income for individual investors starting next year. KB, Shinhan, and Hana are also expected to begin reduction dividends starting in 2027, following their respective general shareholders’ meetings next year.

Riding this momentum, the market expects the banking sector to maintain a high shareholder return rate even under government regulatory environments. Jeong Junseop, a researcher at NH Investment & Securities, analyzed, “Since most banks’ Common Equity Tier 1 (CET1) ratios exceed 13%, they can maintain capital efficiency and return on equity (ROE) by expanding reinvestment or shareholder returns using surplus capital, despite slowing loan growth.”

In fact, there are analyses suggesting that bank stocks, which have shown a clear upward trend since last year, remain undervalued. Currently, the average price-to-book ratio (PBR) of the top five financial holding companies (KB, Shinhan, Hana, Woori, and IBK) stands at 0.58 times. Despite a 64% increase compared to the end of 2023, the discount rate compared to theoretical value still reaches 59%.

Researcher Jeong recommended Shinhan Financial Group and Woori Financial Group as his top picks. He stated, “Shinhan Financial Group has rapidly increased both its capital ratio and shareholder return rate, while its valuation remains attractive and its share buyback ratio in the second half of the year is the highest in the industry relative to market capitalization. Woori Financial Group, as the first to apply tax exemption on dividends from next year, will be the best choice for individual investors who prioritize dividends.”

Daol Investment & Securities highlighted KB Financial Group and Hana Financial Group. Kim Jiwon, a researcher at Daol Investment & Securities, analyzed, “KB Financial Group, which is expected to have the highest shareholder return rate in the sector, is our top pick, while Hana Financial Group, which is expected to accelerate share buybacks and cancellations, is also recommended as a stock to watch.”