[Practical Investment] Dividend Stock Season, Focus on High-Performance Yield Gem Stocks

KOSPI200 High Dividend Index Rises 5% in One Month
Corporate Year-End Dividends Increase 18.1% from Last Year
This Year Samsung Electronics Special Dividend Draws Maximum Attention
Focus on Companies with Earnings Supporting Dividend Yield

[Asia Economy Reporter Song Hwajeong] As the year-end dividend season approaches, interest in dividend stocks is growing. This year, attention is expected to focus on companies with solid earnings supported despite the impact of the novel coronavirus disease (COVID-19).

According to the Korea Exchange on the 16th, the KOSPI 200 High Dividend Index has risen more than 5% in the past month. Although it is still sluggish with a decline of over 11% compared to the beginning of the year, stock prices have been rapidly recovering since November due to expectations for year-end dividends.

Year-end dividends from companies are expected to increase compared to the previous year. According to Daishin Securities, based on current consensus, year-end dividends for KOSPI 200 companies this year are estimated at 20.8 trillion KRW. This represents an 18.1% increase compared to last year's year-end dividend amount of 17.6 trillion KRW. On an annual basis, total dividends are expected to reach 28 trillion KRW, an 8.5% increase from the previous year. Although the dividend amount will increase, the dividend yield is expected to decline. Kim Jiyoon, a researcher at Daishin Securities, explained, "Despite the expected significant increase in dividend amounts this year, the KOSPI 200 dividend yield is expected to fall by 0.5 percentage points from last year to around 1.7%," adding, "This is because the index rose significantly more than the dividend amount."

Particularly, attention is expected to focus on whether Samsung Electronics will implement a special dividend this year-end. If Samsung Electronics carries out a special dividend, year-end dividends are expected to increase more significantly. Researcher Kim said, "Samsung Electronics announced a shareholder return policy from 2018 to 2020 to pay at least 50% of free cash flow (FCF) as dividends over three years and stated that additional cash dividends or share buybacks and cancellations would be implemented if residual funds occur," adding, "Based on this, Samsung Electronics is estimated to have an additional dividend capacity of 6.6 trillion KRW this year."

It is analyzed that due to Samsung Electronics' governance structure, it is more likely to implement a special dividend rather than share buybacks. Converting 6.6 trillion KRW into dividends per share (DPS) amounts to 1,352 KRW, which allows for a special dividend of around 1,000 KRW. Researcher Kim said, "The current highest consensus for Samsung Electronics' December year-end DPS of 1,448 KRW can be seen as reflecting the possibility of a special dividend," adding, "In this case, year-end dividends for KOSPI 200 companies this year would record 26.2 trillion KRW, a 48.8% increase compared to the previous year."

This year, it is advised to focus on companies whose earnings can support dividends rather than those with historically high dividend yields. Companies hit by COVID-19 with reduced earnings are likely to cut dividend sizes. Researcher Kim explained, "Among high dividend stocks, it is necessary to focus on companies with stable net income growth this year that are likely to pay the expected dividends," adding, "This is because poor first-half earnings due to COVID-19 led to a decrease in interim dividends." The interim dividend amount for KOSPI 200 companies decreased by 12.1%, from 8.2 trillion KRW last year to 7.2 trillion KRW this year.

Researcher Kang Hyunjung of Kyobo Securities said, "Out of 198 companies in the KOSPI 200, 162 are expected to pay dividends," adding, "Considering the high concerns about corporate earnings due to COVID-19 this year, looking at net income growth rates for this year and next, comparing dividend increases to the previous year, and referring to movements in individual futures expiration spreads can help select stable dividend stocks."

The traditional high dividend sector, financials, is expected to see a slight decline in dividend yield compared to last year. Researcher Kang analyzed, "The dividend yield for the financial sector this year is expected to be around 4.2%, slightly lower than last year," adding, "Since COVID-19 is likely to continue through winter and financial authorities recommend dividend cuts to strengthen the financial sector's loss absorption capacity, dividends are unlikely to increase compared to last year."

Dividends in energy and cyclical consumer goods sectors are also expected to shrink by about 3% and 6%, respectively, compared to the previous year. Researcher Kang said, "If Samsung Electronics' dividend increases, cash dividends in the IT sector are expected to rise by about 50% compared to last year," adding, "Dividends in high dividend sectors such as staples, industrials, and materials are expected to be paid similarly to the previous year, so overall cash dividends are expected to increase."

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