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Analysts say more dividends benefit only big investors
By Park Jin-hai
The nation's family-run chaebol, or conglomerates, are balking at a plan by Strategy and Finance Minister Choi Kyung-hwan to impose an additional tax on excessive accumulations of cash reserves.
Institutional and foreign investors are consistently asking for the top management of Samsung Electronics and Hyundai Motor Co. to change their low dividend policy as they say higher dividends will lead to an increase in share prices.
But some analysts and company officials pointed out Tuesday that a steep increase in dividends may benefit a few "big investors" and hurt others.
"You should realize that Korea's competitive edges lie in manufacturing. The manufacturing business is highly cyclical and volatile according to economic situations. Meanwhile, we need cash to prepare for 'worst-case scenarios,'" a senior manager at a leading private equity firm said.
"Therefore, it's unlikely that Korean manufacturers will suddenly pay out more on dividends," he added.
Samsung Electronics said it will see new growth opportunities by reaching out to new business territories that have previously been untouched, rather than shifting focus towards a pro-shareholder-return policy.
"Samsung is being squeezed to find something new amid falling profits in its smartphone business. It doesn't make sense for the consumer electronics heavyweight to shift its stance towards more dividends," said an official.
Some say, that unlike Apple, Samsung isn't incredibly profitable as Samsung's main businesses mostly come from parts such as memory chips and displays.
Samsung had cash and near-cash items worth about $17 billion by the first quarter and a current dividend yield of 1 percent, said the company.
Situations are not much different at Hyundai Motor, the nation's biggest automaker. The automaker's dividend payout ratio posted at 6.2 percent and its affiliate Kia Motors' dividend payout ratio stood at 7.4 percent last year, according to data compiled by Meritz Securities.
As for Hyundai, the numbers fell far short of those of their foreign rivals. BMW paid 32.1 percent; Renault-Nissan, 30.6 percent; Toyota, 29.5 percent; and 20.6 percent for Volkswagen.
"There is no denying that Hyundai-Kia's payout ratio has been ‘conservative.' Hyundai Motor and the automaker's component affiliate of Mobis' dividend yields, too, recorded less than 1 percent last year. It is less than the KOSPI average," said Shin Chung-kwan, an analyst at KB Investment and Securities.
"It is the norm that a company that grows fast doesn't have a high dividend ratio, because its rising stock price rewards shareholders. That was the same for Hyundai and Kia Motors," he added.
Hyundai Motor has a yield of 0.8 percent and about $7.4 billion of cash equivalents. On a related note, KB Financial held cash of $8.3 billion and a yield of 1.3 percent.
LG Electronics said its top priority is how to see external corporate growth by expanding its business territories amid challenging business situations. "It's unlikely that LG will take a bold shareholder-friendly policy anytime soon," said an LG official.
SK hynix, the world's second-biggest memory chipmaker, said it will maintain a "conservative" stance towards dividends as it should spend at least more than 2 trillion won only for maintenance costs on facilities and to upgrade the chip-making processing technologies.
There is speculation in the market that Hyundai Motor's dividend payout ratio will increase soon.
The finance ministry's dividend plans are still subject to approval from the parliament. If passed, as planned, the new rules will be effective from next year, according to the ministry.
Under the tax law to be revised, big corporations including Hyundai Motor, Kia Motors and Samsung ― companies traditionally maintaining low dividend payout policies ― will have to spend 65 to 75 percent of their net profits to stave off the tax.
"As seen in the case of General Motor's bankruptcy in 2007 and 2008, there was a need for companies like Hyundai to stash cash. Notwithstanding, Hyundai's cash reserve exceeds the needs. So it is likely to see its dividend payout ratio increase a bit," Shin said. "But the change will not be dramatic, since it has other cash needs for research and development and labor costs."
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