Will Shinhan's decision on quarterly dividends pay off?

By Lee Min-hyung

An air of cautious optimism is emerging over whether Shinhan Financial Group's plan to offer quarterly dividends will help enhance its stock valuation, but a near-term rebound appears unlikely due to the industry's structural slowdown and a series of lingering risk factors surrounding the firm's fund fiascos, market analysts said.

The nation's top-tier financial holding firm decided recently to offer the quarterly dividends to investors and this will take effect as early as March 2021 during its planned shareholders' meeting. The step is to defend against the firm's dismal stock performance by enhancing shareholder value through the regular dividends, according to the company.

Analysts have generally expressed optimism regarding the move, saying it's a positive factor for the firm's longer-term stock rebound. Shinhan is the first financial holding firm to have announced the decision, even if no concrete vision has been shared. They said the decision, in itself, displays the firm's willingness to pay stable dividends to investors at a time when other big financial conglomerates have not taken such a step.

“Shinhan's stock price will move (upward) only when a series of uncertainties surrounding its involvement in fund fiascos have been cleared away, but Shinhan's willingness to offer dividends is positive,” Daishin Securities analyst Park Hye-jin said.

Bank stocks have stuck to a policy of paying dividends at year-end, but this comes with a concern over any possible distortion in supply and demand of the stocks during a certain period of the year, according to the analyst.

“The quarterly dividend payments can alleviate such a concern, and we expect Shinhan's good deeds when it comes to the quarterly dividend drive,” the analyst said.

But the short-term outlook over Shinhan stocks remains murky due to the lingering risk factors surrounding ongoing legal disputes and compensation issues surrounding its affiliates involved in selling troubled fund products, according to the expert.

Shinhan's stock price has been trading at around 30,000 won ($26.44) since April, failing to achieve a meaningful rebound after it nosedived to a 10-year low of 22,000 won in March due to the coronavirus-induced global stock fall. Shinhan shares rarely fell below 40,000 won last year.

This is also the case for other major financial conglomerates ― such as KB Financial Group and Hana Financial Group.

Meritz Securities analyst Eun Kyung-wan said it would take some time for Shinhan to restore investor confidence in the company despite the quarterly dividend decision.

“Reducing a valuation gap against its archrival KB Financial Group is much more important for Shinhan's stock rebound,” the analyst said. The gap has been determined by non-banking profits, according to him.

The two appeared to be neck-and-neck during the second quarter of this year in terms of non-banking profit generated, but this was due to Shinhan's one-time expense surrounding Shinhan Investment's losses stemming from its scandal in the mis-selling of Lime Asset Management funds and derivatives, the analyst said.

“But as KB Financial will also enhance its non-banking profits, as earnings from Prudential Life which KB recently took over will be reflected in KB's third-quarter regulatory filing,” he said. This means the current valuation gap between Shinhan and KB will not change a lot in the latter half of this year, according to the analyst.

The brokerage firm kept Shinhan's target stock price at 36,000 won, and set KB's at 47,000 won.