In Times of Crisis, Stability is Key... Preferred Stocks Deliver Strong Returns

by Song Hwajung

Published 04 Mar.2020 11:32(KST)

Samsung SDI Woo 35%, CJ Seafood 1 Woo 27% etc. Yield Performance Good

[Asia Economy Reporter Song Hwajeong] Despite the increased uncertainty in the stock market due to the novel coronavirus infection (COVID-19), preferred stocks are drawing attention for showing relatively favorable returns.

According to the Korea Exchange on the 4th, the KOSPI Preferred Stock Index fell by 2.78% over the past month. Considering that the KOSPI fell by 4.94% during the same period, preferred stocks performed relatively well.

By individual stocks, many preferred stocks also achieved favorable returns. Samsung SDI Preferred rose more than 35% in the past month, while CJ Seafood 1 Preferred (27.16%), Korean Air Preferred (17.73%), Samsung Electro-Mechanics Preferred (17.31%), and SK Chemicals Preferred (8.97%) recorded high returns.

Even for stocks that saw significant price declines due to concerns over the negative impact of COVID-19, preferred stocks showed relatively better performance. For example, Hotel Shilla’s stock price fell by 4.35% over the past month, but Hotel Shilla Preferred rose by 5.08% during the same period.

Preferred stocks do not have voting rights but offer higher dividend yields than common stocks. With preferred stocks showing favorable returns, investors can also aim for additional income through dividends, making them an alternative in a bearish market. As uncertainty in the stock market has increased recently due to COVID-19, investors appear to be turning their attention to preferred stocks, which can provide relatively stable dividend income. For Samsung SDI, the dividend per share for last year was set at 1,000 KRW for common stock and 1,050 KRW for preferred stock. Samsung Electro-Mechanics decided dividends of 1,100 KRW for common stock and 1,150 KRW for preferred stock, while SK Chemicals set 450 KRW for common stock and 500 KRW for preferred stock. Hotel Shilla decided on dividends of 350 KRW for common stock and 400 KRW for preferred stock.

Jung Hoonseok, a researcher at Korea Investment & Securities, said, "Due to the low interest rate environment and uncertainty, preference for preferred stocks with high dividend yields is increasing," adding, "Especially in a situation where dividend payout ratios are rising, the introduction of the Stewardship Code (principles on fiduciary responsibility) and the full-scale activation of activist funds are likely to reduce the value of voting rights, increasing interest in preferred rights."