This Winter's Dividend Investments Disappoint... "Korea's Dividend Payout Ratio Below Global Average"

[Asia Economy Reporter Lee Seon-ae] The "season of dividends" has arrived in winter, but satisfaction with dividend investment results this year is expected to be low. This is because the scale of year-end dividends is expected to decrease compared to last year.

According to the Korea Exchange and the financial investment industry on the 9th, the total year-end dividend amount based on the KOSPI 200 last year was 20 trillion won, but this year it is estimated to decrease by about 2 trillion won to 18 trillion won. As the scale of year-end dividends itself decreases, the dividend yield is also expected to drop from 1.74% last year to 1.53% this year.

This is interpreted as due to an increase in the number of dividend payments by companies this year and a decrease in the size of Samsung Electronics' special dividends. As quarterly dividends increased, the total dividends per share (DPS) of KOSPI 200 constituent stocks rose to 29,243 won in the first quarter of this year, 2.7 times higher than the same period last year (8,996 won). This is inevitably a factor that affects the scale of year-end dividends.

Huh Yul, a researcher at NH Investment & Securities, explained, "Large-cap stocks such as financial and telecommunications stocks have expanded the number of dividend payments from the existing year-end and semi-annual dividends to semi-annual and quarterly dividends, resulting in a relatively reduced year-end dividend scale. Additionally, last year Samsung Electronics paid a special dividend at once using residual funds from the 2018-2020 shareholder return policy, but this year the size of Samsung Electronics' special dividends is likely to decrease compared to that."

Samsung Electronics announced its 2021-2023 shareholder return policy earlier this year, stating that it would return 50% of the free cash flow (FCF) generated over three years, and raised its regular dividends, forecasting an annual cash dividend of about 9.8 trillion won (compared to about 9.6 trillion won annually in regular dividends from 2018 to 2020). It also stated that additional returns would be made if residual funds occur beyond regular dividends, and some consideration would be given to early returns. Up to the third quarter, Samsung Electronics has paid about 7.4 trillion won in dividends. If it keeps its promise as planned, at least about 2.4 trillion won in dividends is expected at year-end. This translates to a DPS of 409 won. If a special dividend due to early return is made, dividends of up to about 1,800 won are also possible.

As the situation unfolds this way, voices criticizing the low dividend payout ratio of Korean companies are gaining strength. Korea's dividend payout ratio is considerably low compared to the global average. While the global average dividend payout ratio is 45%, Korea's is only 17%. China is at 32%, Japan at 35%, both higher than Korea, while the U.S. is at 40%, and Taiwan and the Eurozone reach 58%. Considering shareholder returns including share buybacks, Korea's shareholder return ratio is only 18%, less than one-fifth of the global average of 73%.

Professor Kim Young-ik of Sogang University Graduate School of Economics pointed out, "One of the causes of the undervaluation of the Korean stock market (Korea discount) is the very low dividend payout ratio," emphasizing that it should be raised to the level of developed countries (around 30%). Heads of securities research centers also agree that raising the dividend payout ratio is necessary for the Korean stock market to leap forward. They say that shareholder return policies should be activated based on stable dividends. No Geun-chang, head of the Hyundai Motor Securities Research Center, advised, "In the era of KOSPI 3000, the dividend payout ratio should be raised like Taiwan," adding, "Companies need to instill in investors the belief that profits are shared with shareholders."

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