The Potential of High Dividend and Low PBR Combinations [Click eJongmok]

Growth Stocks See Unprecedented Popularity Since COVID-19
Dividend Stocks Gain Relative Appeal Amid Rate Cuts
Steel Sector PBR Hits Historic Lows

At this point, stocks in sectors such as telecommunications services and steel, which offer high dividend yields and low price-to-book ratios (PBR), are considered relatively attractive. This analysis comes as the 12-month return gap between value stocks and growth stocks in the domestic stock market has narrowed to its lowest level since the COVID-19 era, and as expectations for interest rate cuts grow, investor preference for dividend stocks is also rising.

On the 29th, DB Securities provided this analysis. The firm first highlighted growing expectations for central bank interest rate cuts. As U.S. employment data has been revised downward, concerns within the Federal Reserve about the future of the U.S. economy have increased.

Kang Hyunki, a researcher at DB Securities, stated, "The Federal Reserve shifted toward a rate-cutting stance at the September Federal Open Market Committee (FOMC) meeting, and the financial market currently expects the Fed to cut rates two more times during the remainder of this year. Since there is a clear intention for an economic turnaround in Korea as well, rate cuts could proceed in line with this global trend."

During periods of interest rate cuts, investor preference for dividend stocks, which are similar to bond-like equities, also rises. As the dividend yield of these stocks surpasses bond interest rates, their relative appeal becomes more pronounced.

The firm also emphasized the importance of paying attention to low-PBR stocks. This is because style concentration in the domestic stock market has reached a critical point. Recently, value stocks have underperformed growth stocks by 16 percentage points in 12-month returns. This is the lowest level since the COVID-19 pandemic in 2020, indicating that interest in growth stocks has reached its peak. Kang noted, "Recently, investors in the U.S. stock market have concentrated their buying on UnitedHealth Group, which is classified as a value stock. It is worth considering whether attention in the domestic market may also shift toward value stocks."

The sectors that overlap with both high dividends and low PBR are telecommunications services and steel. Telecommunications services are attractive from the high dividend perspective, while steel stands out for its low PBR. In particular, the PBR of the steel sector has reached a historic low. Over the past several years, the steel sector's PBR has formed a bottom around 0.3 times, with stock prices moving accordingly.

Kang added, "Currently, the PBR of the Korean steel sector is undervalued at 0.36 times. Given the ongoing restructuring of the Chinese steel industry, those seeking to enhance relative returns should pay close attention to this sector."

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