[Scrap] Korea still poor in dividend payouts

Korea Times

published: 2016-03-14

The country's conglomerates have been increasing dividend payouts recently, but they are still smaller than those of businesses in other major economies. Analysts say that small dividends are the cause of the undervaluation of Korean stocks.

Samsung Securities cited a Thomson Reuters' analysis of firms included in the Morgan Stanley Capital International (MSCI) Index, Monday, reporting that the dividend yield ratio of Korean firms is estimated at 2.01 percent. A total of 107 Korean firms are included in the MSCI index.

This means if a person buys 1 million won worth of Korean stocks, the investor can expect to earn 20,100 won in dividends for the year.

Korea ranked 16th among 17 countries surveyed. Australia and Russia had dividend yield ratios of over 5 percent, while Italy, Brazil and the United Kingdom were also over 4 percent. Japan provided 2.5 percent, China 2.96 percent and the United States 2.33 percent. Only India was behind Korea, providing 1.9 percent.

Korean firms have been increasing dividend payouts recently. KEPCO decided to pay 3,100 won per share in dividends on its 2015 earnings, which is more than six times the previous year.

Lotte Confectionery doubled its dividend payout while SK hynix raise its by 66 percent and Shinhan Financial by 26 percent.

Companies listed on the main KOSPI bourse paid between 4 trillion won and 8 trillion won as total dividends in the early 2000s, but the number soared to over 10 trillion won in the mid-2000s. It has been increasing steeply recently following the government's pressure on businesses. Based on the determination that greater dividends will increase household income and boost consumption, the government has been giving tax benefits to those increasing dividend payouts.

While Korea's low dividend payout ratio, standing at around 20 percent, is partly responsible for sagging stock prices, some economists say that increasing dividends is not a cure-all.

“On top of the low capital gains following the sluggish stock market, the dividend yield ratio is also low in Korea, leading to increasing complaints from institutional investors, especially foreigners,” said Shin Jung-soon, a finance professor at Ewha Womans University in a report.

“However, one should note that Korea's industry is mostly composed of IT, industrial goods and consumption goods that are closely related with the economy where it isn't easy to increase dividend payouts,” he added, mentioning that industries where profit is visible and highly tenable are likely to pay more dividends.