ED More dividend payouts

Time to make efforts to mitigate 'Korea discount'

Expectations are growing among individual investors that the nation's major listed companies and banks will hand out record dividends, boosted by their pandemic-driven high net earnings last year. In fact, Samsung Electronics as well as the four major banking groups announced plans recently for record-high dividend payouts.

In particular, the total dividends handed out by the four major banking groups ― KB, Hana, Shinhan and Woori ― are estimated to hit a record high of 4 trillion won ($3.35 billion) this year, about 26 percent of their combined net profit of over 15 trillion won. Nevertheless, the dividend payouts by the major businesses here are still not considered high by international standards.

The dividend payout ratio, which measures the proportion of cash dividends to net profit, remains at 26 percent on average for Korea's listed companies. But this ratio pales in comparison to that of other major industrialized countries ― 56 percent in Britain, 45 percent in France, 41 percent in the U.S. and 31 percent in Japan.

Of course, generous dividend payouts are often subject to criticism on the ground that it would be better to increase corporate value through investments rather than dividends. However, this allegation seems far-fetched, given the desperate need to retain overseas investors as well as domestic ones through increased dividend payouts at a time when more Koreans are investing in overseas stocks.

It's no secret that many listed companies have been under fire for paying stingy dividends and instead storing cash reserves despite snowballing profits. But it's wrong to tolerate the exodus of investors seeking better investment opportunities abroad. Efforts to rectify the so-called “Korea discount,” which refers to a phenomenon where Korean stocks are undervalued in comparison to corporate value, are all the more necessary to retain domestic investors. Policymakers should keep in mind that encouraging listed firms to pay more dividends is essential to ensure security for retirees ― considering that Korea has already become an aged society ― and to help stabilize our capital markets.