[Deputy Editor's Column] Performance and Dividends

[Asia Economy Reporter Song Hwajeong] The growth in dividends of listed companies is expected to slow down. Although corporate dividends surpassed 30 trillion won in 2018, reaching an all-time high, a decline became inevitable last year due to poor corporate earnings.

According to financial information provider FnGuide, as of the 2nd, the total dividends declared for the 2019 fiscal year by 851 companies were 27.4132 trillion won. This is a 14% decrease compared to 2018.

The deterioration in corporate earnings led to a reduction in dividends. Last year, operating profits of KOSPI-listed companies are estimated to have decreased by more than 30%. SK Hynix, whose operating profit fell by 87% last year, set dividends at 684 billion won, down 33% from the previous year. LG Chem and SK Innovation each cut dividends by more than 60%. LG Chem’s operating profit decreased by 60% last year, and SK Innovation’s operating profit dropped by 39.6%.

On the other hand, companies that recorded strong performances last year significantly increased their dividends. Securities firms that posted record-high earnings last year expanded their dividends. Samsung Securities decided on a cash dividend of 1,700 won, up 300 won from the previous year, and Hyundai Motor Securities also increased dividends from 450 won to 600 won last year. Mirae Asset Daewoo raised common stock dividends from 220 won to 260 won and preferred stock dividends from 242 won to 286 won, while Daishin Securities significantly increased dividends from 620 won to 1,000 won. Samsung SDS and DB Hitek, which posted record earnings last year, also increased dividends by 20% and 40%, respectively.

Generally, once dividends are increased, it is difficult to reduce them again because it is a promise to shareholders. Moreover, recently, pressure from institutional investors to increase dividends has been considerable. Previously, the National Pension Service changed the purpose of stock holdings from 'simple investment' to 'general investment' for 56 listed companies, enabling it to actively demand improvements in dividends and corporate governance. There has also been an increase in cases where asset management firms send open shareholder letters to companies they have invested in, urging dividend increases.

Nevertheless, the reason companies have no choice but to reduce dividends is simply because their circumstances are unfavorable. Furthermore, due to the novel coronavirus disease (COVID-19), it is uncertain whether earnings will improve this year. Dividends are necessary as a way to return profits earned from corporate activities to investors. However, excessive dividend increases can instead act as a factor that undermines corporate value. Currently, a balance between dividends and future growth is needed, considering both dividend yield and price-earnings ratio, to maximize shareholders’ total returns through an 'optimal dividend policy (optimal dividend policy)'.

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