Samsung Electronics to Announce New Shareholder Return Policy on 28th... Expectations Rise for Bold Dividends

On the 29th, when Samsung Electronics announced its confirmed third-quarter results, the Samsung Electronics building in Seocho-gu, Seoul. Despite the resurgence of the novel coronavirus (COVID-19), Samsung Electronics achieved a record with third-quarter sales approaching 67 trillion won this year. Operating profit also exceeded 10 trillion won for the first time in two years. The third-quarter operating profit was 12.3533 trillion won, an increase of 58.83% compared to the same period last year. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Dongwoo Lee] Samsung Electronics will unveil a new shareholder return policy on the 28th. The newly announced shareholder return policy is expected to continue for more than three years, and the securities industry is placing emphasis on the possibility of announcing an unprecedented dividend policy.

According to the securities industry on the 13th, Samsung Electronics will disclose the new shareholder return policy along with its fourth-quarter earnings announcement on the 28th of this month. The company announced in October 2017 that it planned to return 50% of the free cash flow (FCF) generated over three years from 2018 to 2020 to shareholders. At that time, the promised dividend amount was 354 KRW per share, totaling 9.6 trillion KRW annually, amounting to a total of 28.8 trillion KRW over three years.

FCF refers to the cash remaining after a company deducts taxes, expenses, and capital expenditures from its earnings. Samsung stated that it would return value to shareholders through dividends, and if there is residual capital due to high profits, additional dividends or share buybacks and cancellations would be conducted.

The securities industry expects the surplus cash to be returned in the form of special dividends rather than share buybacks. Considering Samsung's net income, capital expenditures, and depreciation over the past three years, the residual capital is estimated to be around 7 to 8 trillion KRW.

Taking into account that dividends on Samsung Electronics preferred shares are higher than those on common shares, dividing this amount by the total number of Samsung Electronics shares suggests a special dividend of approximately 1,000 KRW per common share. Combining the basic dividend of 354 KRW per share from the fourth quarter of last year with the special dividend, shareholders are expected to receive a total dividend of around 1,300 to 1,400 KRW per share this time.

The industry anticipates a 'groundbreaking' dividend policy in the new shareholder return policy starting this year, considering the need to secure funds for Vice Chairman Lee Jae-yong's inheritance tax.

Particularly, attention is focused on whether the existing shareholder return scale of '50% of free cash flow' will be increased. The industry forecasts that with the semiconductor supercycle arriving over the next two to three years, Samsung Electronics' annual operating profit could reach around 50 trillion KRW, making it highly likely that free cash flow will increase compared to the previous three years.

Even without raising the '50% of FCF' standard, the dividend amount over the next three years is expected to exceed the previous amount (9.6 trillion KRW annually), according to industry observations. If Samsung Electronics raises the dividend scale to 55% or 60% of free cash flow, the dividend amount will increase significantly. When Samsung changed its shareholder return policy in 2017, it decided not to include merger and acquisition costs when calculating 50% of free cash flow. This means that even if the company makes acquisitions, the dividend amount will remain unchanged.

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