[Click eStock] Telecom Stocks Expected to Normalize Earnings and Regain Dividend Appeal Next Year

Korea Investment & Securities stated on December 1 that it maintains its "Overweight" recommendation for the telecommunications services sector, expecting that next year's earnings will normalize and dividend appeal will recover.

Kim Jeongchan, a researcher at Korea Investment & Securities, explained, "As earnings are expected to normalize in 2026, much of the concern over dividends will be resolved," adding, "With the requirements for separate taxation of dividend income also being met, the value of dividend stocks, which had recently faded somewhat, can be restored."

The three major telecommunications companies are all expected to meet the final standards of the tax reform plan related to separate taxation of dividend income. The criteria for application are either a dividend payout ratio of 40% or higher, or a payout ratio of at least 25% with a year-on-year dividend increase of 10% or more. Kim noted, "Although the accounting standards for the payout ratio have not been finalized, even when viewed conservatively on a consolidated basis, SK Telecom and LG Uplus have payout ratios of 83% and 47%, respectively, thus basically meeting the 40% threshold." He continued, "In the case of KT, despite one-off NCP real estate sales revenue in 2025, the dividend policy is based on adjusted net income on a separate basis, so the consolidated payout ratio is expected to be only 32%. However, since the dividend amount is expected to increase by 18% compared to 2024, KT could still qualify for separate taxation."

At the end of this year and the beginning of next year, LG Uplus is considered a relatively stable option. Kim stated, "For the fourth quarter of this year, the expected dividend yield is 2.7% for LG Uplus, which has a high year-end dividend component, and 1.2% for KT, which pays quarterly dividends. SK Telecom's ability to pay dividends in the fourth quarter, as in the third quarter, remains uncertain," adding, "Therefore, at the end of the year and the beginning of next year, LG Uplus, with less earnings uncertainty and higher dividend appeal, could be a relatively stable choice."

Taking into account next year's outlook and other factors, KT remains the top pick overall. Kim explained, "KT remains our top pick because it has the highest total shareholder return (TSR) overall," adding, "SK Telecom is expected to have the highest dividend yield in 2026, and LG Uplus is projected to have a greater improvement in earnings, but there are base differences in 2025 and limited upside for share prices. Meanwhile, KT's dividend yield (5.4%) is also attractive, and its operating profit growth rate excluding one-off revenue (up 13% year-on-year) is solid, but the stock price is still suppressed. If there is no significant differentiation among the three companies in terms of dividends and earnings, KT has greater potential for a re-rating from a turnaround perspective."

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