[도약! 한국증시]③ Korea’s lowest-ranking dividend in the G20… Taiwan increased dividends steadily

Input 2021.01.09 06:00

“In the era of KOSPI 3000, the dividend payout ratio needs to be increased like in Taiwan. Companies must instill in investors the belief that if they make a profit, they share it with shareholders. The dividend yield itself must also be good. The stock price will change depending on the economic situation, but the dividend yield is high. Because it reduces the risk (risk) for investors.”

Noh Geun-chang, head of the Hyundai Motor Securities Research Center, emphasized that in order to continue the era of 3000 KOSPI, the shareholder return policy must be activated based on stable dividends. In the era of low interest rates, dividends are a stable source of income. If dividends increase, it can increase the so-called’buy Korea’ scale by giving foreign investors the perception that’Korea is a high dividend paying country’.

The tendency to be stingy about dividends has been pointed out as an undervalued factor in the Korean stock market. Securities industry officials emphasized that in order to continue the KOSPI 3000 era, a shareholder return policy must be activated based on stable dividends.

A case in which dividends played an important role in the stock market rise can be found in Taiwan. Taiwan has steadily increased its dividend yield in recent years. Currently, Taiwan’s dividend yield has reached the 4% level. This is higher than Korea, which has a dividend yield of 1%, as well as Britain, France, the United States, Japan, and Germany, which are in the 2-3% range.

As a result, the Taiwanese Gawon Index has risen by about 66% in the last 10 years. During the same period, the KOSPI index rose by about 45%. The dividend yield is the annual dividend per share divided by the current share price. “In Taiwan, the stock market has taken a leap forward while raising the dividend yield,” he pointed out, “Korean companies are still stingy with dividends.”

Although the KOSPI index hit a record high last year, the dividend yield is expected to be lower than in 2019. As of December 10, the annual dividend yield of the KOSPI 200 is 1.74%. Kang Hyun-jung, a researcher at Kyobo Securities, predicted, “Last year, cash dividends increased 18% compared to 2019, but the dividend yield will decline by about 0.4 percentage points (p) as the market capitalization of the securities market increased last December.”

The dividend payout ratio of Korean companies is also low compared to global standards. Dividend payout ratio is the ratio of the total amount of dividends paid in cash among net income. If a company records a profit of 1 million won and then distributes 200,000 won, the payout ratio of the company is 20%. Usually, the higher the dividend payout ratio, the higher the dividend yield.

The average dividend payout ratio of 7 major countries (G7) is in the 40% range. The domestic dividend payout ratio in 2019 was 41.25%. At first glance, there seems to be no difference from the overseas figures, but experts assessed that this was due to the optical illusion caused by the sharp decline in profits of companies. Their analysis is that the average dividend payout ratio of the G7 countries is 1.5 times that of Korea, and that Korea is in the lowest position among the G20 beyond the G7.

Experts advised that if it is difficult to raise the dividend yield or payout ratio right now, subdividing the dividend cycle could be a good idea. Hwang Se-woon, a research fellow at the Capital Market Research Institute, said, “It is a positive part to pay dividends frequently,” and “Korean companies need to review quarterly dividends like foreign companies.”

Currently, even if Korean companies pay interim dividends, they usually pay dividends twice a year. Even this is mainly concentrated at the end of the year. According to F&Guide, out of 199 listed companies, 171 companies have paid dividends at the end of the year. In the first half of last year, a number of companies that suffered business deterioration due to Corona 19 omitted interim dividends.

On the other hand, many US companies pay dividends on a quarterly or monthly basis. Tobacco company Philip Morris pays dividends in January, April, July and October. Telecom company AT&T pays dividends in February, May, August, and October, while oil company Exxon Mobil pays dividends in March, June, September, and December. By diversifying investments in these three companies, you can receive dividends in dollars every month except in November of the year. There are also places that pay monthly dividends like Global Net Lease.

Consistently frequent dividends can attract individual investors to the stock market. American companies that pay quarterly dividends are popular with retirees who want a full dividend like a salary. By introducing such a dividend cycle in Korea, it is possible to secure funds for individual investors in the elderly.

Seung-min Yoo, head of the investment strategy team at Samsung Securities, said, “Dividends are a means to give you confidence that stock investment is not a risky investment, but that you can increase your assets in the long run.” “If dividends are stably distributed, the assets that were focused on real estate will be distributed to the stock market. I said.

Experts pointed out the purchase and cancellation of treasury stocks of listed companies as well as dividends in terms of shareholder return. When a company buys treasury stock, the stock price rises. For this reason, shareholders often prefer to buy treasury shares over dividends.

In the case of overseas, treasury stock purchases usually lead to retirement of treasury stocks, so the share price rise is evident, but even if Korea buys treasury stocks, it still remains in corporate financial statements. In other words, the purchased treasury stock can be brought back to the market at any time. As a result, even if a treasury stock purchase is made, the stock price rises more slowly than overseas.

Research Fellow Hwang said, “Institutional investors should actively request the purchase and cancellation of treasury stocks. The government also needs to think about a method of obligating the purchase of treasury stocks by incineration.” Kang Song-cheol, a researcher at Shinhan Investment Corp., pointed out that “the low shareholder return rate is one of the reasons the Korean stock market is undervalued.”

According to Hana Financial Investment on the 5th, the shareholder return rate (the share of dividends and treasury stock purchases in net profit) of companies listed on the securities market from 2012 to 2019 was an average of 25%. Compared to the average 98% of the US (S&P500) during the same period, it is very low.

Researcher Hwang advised that in addition to corporate voluntary efforts, investors should also actively raise their voices to expand dividends. He said, “Institutional investors should ask companies to increase dividends and divide dividend cycles. As content such as dividend cycle segmentation is related to corporate management, it is difficult to make institutional obligations, so institutional investors should encourage companies to voluntarily increase dividends.

Director Roh mentioned the need for government policy support. He said, “It can be a way to deduct corporate tax as much as the dividend,” he said. “If you cut the tax, it is good for companies and investors who receive dividends are good.” He also argued, “We must go in the direction of giving incentives to systematically expand our shareholder return policy.”

In August 2014, during the Park Geun-hye administration, an attempt was made to divert the cash equivalent of the company’s internal reserves to dividends due to the’corporate income tax return’, but it did not produce any clear results. This system includes taxation if a company does not use a certain portion of its profits to raise dividends and investment wages. However, as the Moon Jae-in regime changed to the’Investment and Win-Win Cooperation Promotion Tax System’, the contents related to dividends were omitted.