21% of National Pension Fund Invested Companies Give 'Meager Dividends'... Are They Targets at Shareholders' Meetings?

Minister of Health and Welfare Park Neung-hoo is delivering opening remarks at the 9th National Pension Fund Management Committee held at the Plaza Hotel in Jung-gu, Seoul, on the 27th of last month. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Koh Hyung-kwang] Among the five listed companies in which the National Pension Service (NPS) holds more than a 5% stake, one in five either paid no dividends at all despite making a net profit or paid dividends amounting to less than 10% of their net profit.

As the NPS recently established guidelines for active shareholder engagement, signaling more proactive efforts to enhance shareholder value than in the past, it is expected to increase pressure on these "meager dividend" companies ahead of this year's shareholder meetings.

According to financial information provider FnGuide on the 20th, as of the end of last year, among 313 listed companies in which the NPS holds more than a 5% stake, 67 companies (21.4%) had a dividend payout ratio of less than 10% or paid no dividends at all for the 2018 fiscal year.

The dividend payout ratio is a representative indicator showing how much profit a company returns to its shareholders, calculated as the ratio of dividends paid in cash to net income (controlling shareholder net income on a consolidated basis).

Notably, among these 67 companies, 26 made a net profit in the 2018 fiscal year but paid no dividends. Among them, Celltrion (NPS stake 8.11%) recorded a controlling shareholder net income of 261.8 billion KRW and retained earnings of 1.0718 trillion KRW for 2018 but paid zero dividends.

Doosan Infracore (stake 6.14%) and Pan Ocean (stake 5.81%) also reported controlling shareholder net incomes of 246.4 billion KRW and 152.4 billion KRW respectively, yet paid no dividends.

Additionally, 41 companies had dividend payout ratios less than 10%, which is less than half the average for domestic listed companies. SK Hynix (stake 10.24%) paid dividends amounting to 6.6% of its controlling shareholder net income of 15.5401 trillion KRW, totaling 1.026 trillion KRW, while Hyosung (stake 10.00%) had a dividend payout ratio of only 3.03% on a controlling shareholder net income of 3.3578 trillion KRW.

In the case of HDC (stake 10.87%), dividends amounted to 8.6 billion KRW on a controlling shareholder net income of 917.1 billion KRW, resulting in a payout ratio of just 0.94%.

According to FnGuide, the average dividend payout ratio in 2018 was 23.68% for the KOSPI market and 37.04% for the KOSDAQ market.

Earlier, the NPS decided in its active shareholder engagement guidelines adopted at the end of last year to strengthen management by focusing on companies with low dividend payout ratios, lacking reasonable dividend policies, or failing to comply with such policies.

The NPS plans to engage in active shareholder activities such as shareholder proposals for companies that show no improvement after going through stages including confidential dialogue, confidential focused management, and public focused management, or those that refuse dialogue altogether and are deemed unlikely to improve.

This is why the NPS is expected to intensify its efforts to enhance shareholder value targeting "meager dividend" listed companies during this year's shareholder meeting season.

Choi Yong-hwan, Senior Researcher at Sustainvest, a responsible investment consulting firm, explained, "Even when the NPS's investment stake does not exceed 5%, companies in which the NPS has invested show a dividend payout ratio 20% higher than companies excluded from investment," adding, "This means the influence of the NPS's equity investment on the dividend payout ratios of listed companies has significantly increased."

This content was produced with the assistance of AI translation services.