Samsung to increase dividends over next 3 years

By Kim Yoo-chul

Samsung Electronics is considering increasing dividend payments to its shareholders over the next three years, sources said Monday.

"Samsung Electronics plans to pay more dividends to global investors and to contribute to revitalizing the local economy by increasing shareholders’ value," a company official familiar with the deal said.

Samsung Electronics said last week that it will raise its annual dividend payments this year by up to 50 percent, less than a month after it said it will repurchase $2 billion worth of its own shares.

As the so-called "New Samsung" is nearly under the control of the group's third-generation led by Chairman Lee Kun-hee's only son and heir-apparent Lee Jae-yong, Samsung Electronics is willing to boost the financial rewards of shareholders.

Its move to take steps to boost shareholder value comes as Samsung's top profit propeller from smartphones is reaching full maturation and showing slower growth.

"Samsung plans to increase dividends over the next three years,” said the official. “Its commitment to increasing dividend payouts will send messages to investors that Samsung is confident about its performance in the years to come."

The company’s move to expand dividends is in line with the Park Geun-hye administration’s call for companies to pay more to shareholders as part of efforts to help boost domestic demand.

Samsung expects to see a mild recovery in profit during the fourth quarter of this year after it saw third-quarter profits fall by 50 percent, year-on-year.

But he said exact dividend rate will be subject to market conditions.

"That's why Samsung Electronics said it was considering a dividend increase between 30 and 50 percent," he said.

ADR listing?

Samsung's dividend ratio to its profits still remains low.

Morgan Stanley earlier estimated that this new dividend plan by Samsung would translate to a dividend yield of 1.4 percent to 1.7 percent this year.

By comparison, TSMC of Taiwan has a dividend yield of 2.2 percent and Apple's dividend yield is 1.7 percent.

Samsung's plan to increase dividend payments in the years to come won't make any major impact on its cash structure because Samsung sits on ample cash pileups, analysts said.

By the third quarter, Samsung has around $61 billion in accumulated cash, according to the company.

IBK Securities analyst Lee Ka-keun said the Samsung's new dividend plan will have minimum impact on the company.

"Samsung used the word 'special increase' in dividends. This disappointed some investors. But Samsung has been consistent in boosting shareholder value. This is good in the long-term," Lee said.

This year, Samsung plans to spend between 2.80 trillion won and 3.23 trillion won for dividends.

Shareholders are expected to receive between 18,590 won and 21,450 won per share.

It spent 2.15 trillion won in dividends for 2013, and 1.2 trillion won in 2012.

As Samsung is becoming more serious about sharing its annual performance with investors, other sources said that the company will consider allowing its shares to be traded on a major U.S. exchange via American Depository Receipts (ADR).

Samsung shares are being traded on the Korea Exchange and its global depositary receipts are listed in Europe.

Bernstein Research said, “We also find that Samsung's stock is heavily limited by the market it trades in and believe that an ADR or U.S. listing is necessary to increase foreign interest."

Some market analysts say Samsung resembles Apple because the Cupertino-based outfit saw an improvement to its stock value by paying more to investors.

"Samsung shareholders may see a huge rise in the company's stock price if the company continues to use more of its cash for shareholders," said Eugene Securities analyst Lee Jeong.

Apple's stock is up about 75 percent since its first dividend increase in May 2013.