Neglected Dividend Stocks Are Rising Again

Interest Rises Ahead of Year-End Dividend Season
KOSPI High Dividend 50 Index Up 3.97%
Increased Market Volatility from US Election Also Positive

[Asia Economy Reporter Song Hwajeong] Dividend stocks, which had been sidelined amid the strong performance of growth stocks since the outbreak of the novel coronavirus disease (COVID-19) earlier this year, are gradually regaining momentum as the year-end dividend season approaches. With corporate earnings gradually recovering in the second half of the year, interest in dividend stocks is expected to increase further toward the end of the year.

According to the Korea Exchange on the 20th, the KOSPI High Dividend 50 Index rose 3.97% from the beginning of this month through the previous day. This outperformed the KOSPI, which increased by only 0.81% during the same period.

High dividend-related exchange-traded funds (ETFs) are also showing strong performance. Since the beginning of this month, the ARIRANG High Dividend ETF recorded a 5.12% return, KOSEF High Dividend 5.11%, Power High Dividend Low Volatility 4.69%, TIGER KOSPI High Dividend 4.61%, KODEX High Dividend 3.31%, and KBSTAR High Dividend 3.07%, with most high dividend ETFs significantly outperforming the KOSPI returns.

Dividend stocks showed a sluggish trend earlier this year. Growth stocks attracted attention after the COVID-19 outbreak, and concerns over corporate earnings increased, leading to relative neglect of dividend stocks. While the KOSPI rose 8.29% compared to the beginning of the year, the KOSPI High Dividend 50 Index fell 9.38%. Kim Jiyoon, a researcher at Daishin Securities, said, "Sectors with a high proportion of high dividend stocks, such as finance, energy, materials, and utilities, generally have a cyclical value stock tendency. However, due to COVID-19 in the first half of the year, the reliability of earnings in these sectors declined, causing dividend stocks to underperform the KOSPI this year." He also analyzed that the low interest rate environment highlighted the investment appeal of growth stocks over value stocks, further deepening the price decline.

As the year-end dividend season approaches, interest in dividend stocks, which had been neglected, has increased significantly. Researcher Kim said, "Along with expectations for earnings improvement due to economic recovery, the high dividend yields of dividend stocks ahead of the year-end dividend season can be highlighted," adding, "Recently, earnings forecasts have been revised upward mainly for value stocks, narrowing the earnings gap with growth stocks, which is positive for dividend stocks with a strong value orientation."

The increased volatility in the stock market due to the U.S. presidential election is also positive for dividend stocks. Seo Sangyoung, a researcher at Kiwoom Securities, said, "The current situation where the gap with market interest rates has reached an all-time high is a factor that increases the incentive for dividend stocks," and added, "Especially with the ongoing global spread of COVID-19 and heightened political uncertainty ahead of the U.S. election in November, interest in dividend stocks, which have shown stable performance during periods of high volatility, is increasing."

Regarding dividend stock investment, there is an opinion that attention should be paid to stocks expected to have stable earnings growth. Researcher Kim said, "Since the earnings deterioration of dividend stocks in the first half of the year triggered concerns about dividend uncertainty, it is necessary to focus on companies expected to have stable net profit growth this year," adding, "It is worth paying attention to stocks with an expected dividend yield of over 3% and an expected net profit growth rate of over 10% compared to the previous year." He further noted, "In particular, stocks whose net profit consensus has risen in the past month may attract relative attention during the ongoing earnings season." Daishin Securities cited related stocks such as Kumho Industrial, Meritz Fire & Marine Insurance, Samsung Securities, Samsung Card, Lotte Food, Mirae Asset Life Insurance, Lotte Himart, and Mirae Asset Daewoo.

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