Dividend Stock Funds with Maturing Yields

Active Dividend Stock Fund Yield 13%
Highest Among Domestic Equity Funds

Funds Flowing into Finance and Telecommunications Sectors
Experts Say "Now Is the Right Time to Invest"

[Asia Economy Reporter Minji Lee] Interest in dividend stock funds tends to increase in the fall. The saying "When the cold wind blows, dividend stocks" refers to the period when investment funds targeting year-end dividends flood in. However, dividend stock funds are continuing their strong performance even before the cold wind starts blowing. As funds flow into companies with greater dividend capacity instead of growth stocks that are dragging down the stock market, the performance of dividend stock funds is outperforming the market average returns.

According to financial information provider FnGuide on the 28th, as of the 27th, the year-to-date return of active dividend stock funds was 13.05%, the highest among domestic equity fund types. It is sailing smoothly with a performance nearly twice as high as the index-type fund returns (7%) that track major market indices.

The improved returns of dividend stock funds are analyzed to be due to companies with high dividend capacity increasing their stock price gains this year. In fact, according to the Korea Exchange, the KOSPI High Dividend 50 Index, composed of 50 stocks with high dividend yields, posted a 29.45% return since the beginning of the year, the best performance. The returns of other thematic indices such as ESG (Environmental, Social, Governance), secondary batteries, and BBIG (Battery, Bio, Internet, Game) were also significantly outpaced. As the stock market continued to weaken centered on growth stocks, funds poured into sectors representing dividend stocks such as finance, telecommunications, and utilities.

Among dividend stock funds, the best-performing fund was the ‘DB Jinju Finding High Dividend Securities Investment Trust,’ which yielded a 17% profit since the beginning of the year. ‘VI Good Choice Dividend Securities Investment Trust (16.29%)’, ‘Samsung Dividend Long-term Securities Investment Trust (15.8%)’, and ‘Shinyoung Value High Dividend Securities Investment Trust (15.4%)’ also showed double-digit returns. The common stocks held by these funds include Samsung Electronics, SK Hynix, POSCO, Hyundai Motor, Hana Financial Group, SK Telecom, and KB Financial, representing companies with high dividend yields in IT, automotive, telecommunications, and finance sectors.

The fact that companies are strengthening their profit resilience despite the COVID-19 situation further enhances the appeal of dividend stock funds. Last year, KOSPI companies paid dividends totaling about 33 trillion won, an increase of about 60% compared to the previous year. Although Samsung Electronics issued a special dividend worth 13 trillion won, the major factor was that leading companies actively responded to COVID-19. The market expects KOSPI operating profits to increase by 60% compared to last year, suggesting that dividend capacity will further improve.

Market experts advise that now is the right time to invest in dividend stocks. Investment funds expecting dividends typically start flowing in from the second half of the year, so investing early is a way to increase returns. Jae-eun Kim, a researcher at NH Investment & Securities, explained, "If you invest in domestic dividend stock funds, many have December fiscal year-ends, so dividend expectations are already reflected in stock prices near the dividend date, resulting in poor returns. At the beginning of the year, as dividend factors disappear, returns drop significantly, so the period with the most outstanding performance is between June and August."

When selecting funds, it is better to look for products that hold mainly high-dividend stocks rather than dividend growth stocks with a high possibility of increasing dividends. This is based on the analysis that as the U.S. Federal Reserve's tapering discussion brings interest rate hikes closer, the ability to withstand rising interest rates may vary depending on dividend yields. The funds with the largest net inflows in the past three months include ‘Baring High Dividend Securities Investment Company (40.3 billion won)’, ‘Shinyoung Retirement Pension Dividend Stock Securities Investment Trust (7.3 billion won)’, and ‘Mirae Asset Retirement Pension High Dividend Focus Securities Investment Trust (3.5 billion won)’, all of which hold high-dividend stocks. Yong-gu Kim, a researcher at Samsung Securities, said, "If the long-term interest rate rises by 10 basis points (1bp=0.01%), stocks with a 5% dividend yield fall by 2%, but stocks with a 1% dividend yield inevitably fall by about 10%. The most effective strategy to respond to interest rate pressure is to invest in high-dividend stocks."

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