Dividend Stock Search Frenzy "Combining Earnings + Oversold Stocks, Top Promising Picks"

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[Asia Economy Reporter Lee Seon-ae] Dividend stocks are considered the safest investment destination in the stock market for the second half of the year. Accordingly, securities firms recommend establishing investment portfolio strategies that combine earnings stocks with dividend stocks or combine oversold stocks with dividend stocks. From the third quarter, a bear market due to downward revisions in corporate earnings estimates will begin. Given the high potential for increased volatility in the stock market, a conservative yet stable strategy that can pursue excess returns until the end of the year is 'high dividend and low volatility.'

On the 3rd, securities firms are deeply engaged in searching for dividend stocks. However, the point to note is that dividend stocks should be selected with a focus on earnings forecasts, considering the bear market. Lee Kyung-soo, a researcher at Daishin Securities, emphasized, "This year, domestic corporate earnings are expected to decline (operating profit growth rate forecast for 2022 is -3.7%), and although next year is projected to grow (+9.2%), it is optimistic and there is a possibility of earnings decline. Going forward, the rarity of earnings stocks will be reflected," adding, "If high dividends are added to the variable of earnings, it will become a stable model."

The sectors with the highest growth rates next year are cosmetics, auto parts, media & entertainment, chemicals, home appliances, defense, pharmaceuticals, hardware, and distribution, in that order. Although partly due to the base effect, sectors such as hotels & leisure and displays are also expected to show a turnaround. On the other hand, shipping, energy, trading companies, steel, semiconductors, and non-ferrous metals are sectors expected to experience relatively large negative growth compared to this year. However, when considering earnings momentum (the degree of recent upward revisions in earnings), sectors such as airlines, textiles & apparel, defense, trading companies, automobiles, and semiconductors are positive. Conversely, displays, pharmaceuticals, chemicals, construction, steel, shipping, media & entertainment, cosmetics, hotels & leisure, and food & beverages have recently seen downward earnings revisions. This is why both earnings growth rate and recent earnings momentum must be considered. He pointed out, "As of now, top stocks include Korean Air, Youngone Corporation, Kolmar Korea, Hyundai Marine & Fire Insurance, Shinsegae, Daeduck Electronics, LX International, DB Insurance, GS, Lotte Rental, Shinsegae International, HD Hyundai, and Semitics."

There is also an investment opinion that combining oversold stocks with dividends will yield good results. Oversold stocks are those that have fallen sharply over a specific period. Stocks that have experienced a sharp decline in a short period are less likely to fall further. In fact, the oversold stocks presented in August, excluding volatile healthcare sectors like L&CBio and SBW Life Sciences, showed smaller declines. When these stocks were used to form an equally weighted portfolio, it outperformed the KOSPI by 0.55 percentage points. Yang Hae-jung, a researcher at DS Investment & Securities, believes that oversold stocks will remain valid for the time being as there are no driving factors in the stock market currently.

He applied the oversold criteria to stocks with an expected year-end dividend yield of over 5% and combined dividends to suggest promising stocks such as BNK Financial Group, JB Financial Group, Woori Financial Group, Industrial Bank of Korea, Shinhan Financial Group, POSCO Holdings, LX Semicon, Korea Land & Trust, Korea Financial Group, Hanyang Securities, Hyosung TNC, Lotte Himart, HMM, and Kumho Petrochemical.

Lee Jung-bin, a researcher at Shinhan Financial Investment, said, "If the high dividend and low volatility strategy is combined with stable earnings, it would be ideal," adding, "Representative stocks with high dividend yields and low price volatility include KT, KT&G, SK Telecom, Samsung Card, and POSCO Holdings, while high dividend earnings stocks include Hyundai Motor, Kia, KB Financial Group, Shinhan Financial Group, and Hana Financial Group."

He continued, "Dividend stocks are expected to be a safe investment destination in the second half of this year," explaining, "The 'KOSPI High Dividend 50 Index' recorded a cumulative excess return of 12.8 percentage points over the KOSPI in the third quarter of 2021, a period favorable due to the base effect and low volatility." This index continues to outperform the KOSPI to date. Looking at the sector composition of the index, excluding Samsung Electronics, financials account for the highest at 72%, followed by materials and consumer staples at 17% and 7%, respectively. Within financials, banks, insurance, and securities make up 65%, 19%, and 15%, respectively. The researcher analyzed, "It is advantageous to select dividend stocks within the 'KOSPI High Dividend 50 Index' for investment," adding, "Stocks with positive 1-month and 3-month earnings per share (EPS) consensus change rates, positive operating profit growth rates for 2022, and return on equity (ROE) exceeding 10% are good picks. Currently, quant screening identifies Hyundai Motor, Kia, KB Financial Group, Shinhan Financial Group, Hana Financial Group, KT&G, Woori Financial Group, DB Insurance, Meritz Fire & Marine Insurance, and Hyundai Marine & Fire Insurance as such stocks."

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