By Yoon Ja-young
The government has criticized conglomerates for being too stingy when making dividend payouts, and is adopting tax measures to make them provide more.
Meanwhile, foreign businesses operating here are sending most of their income to headquarters as dividend, causing controversy over excessive “outflow of national wealth.”
CEO Score, a business information provider, analyzed 28 foreign companies that marked over 1 trillion won sales last year. These firms recorded a total of 302.5 trillion won sales during the past three years, making 12.6 trillion won in net income.
Of this net income, they have paid 10.1 trillion won in dividends, recording over 80 percent payout ratio.
This is three times higher than the 26.7 percent dividend payout ratio recorded by the country’s top 10 conglomerates last year.
GM Korea was the most generous, marking 274.5 percent dividend payout ratio. It had only 120 billion won net income during the past three years due to a 100 billion won deficit in 2012, but it paid 200 billion won in dividends during this period.
GM Korea explained that this was due to the contract with Korea Development Bank. “When GM acquired Daewoo Motors in 2002, preference shares were given to the KDB, the main creditor of Daewoo. KDB was paid 200 billion won dividend according to the contract, while GM headquarters didn’t get any dividend,” a spokesperson for GM Korea explained.
Sony Korea followed GM Korea marking 272.7 percent, and Corning Precision Materials ranked at third as it paid 6.8 trillion won as dividend though its net income stood at 4.5 trillion won. A Corning spokesperson said that the dividend payout was exceptionally large as it settled a joint venture relationship with Samsung.
BASF Korea, Korea Delphi, Novelis Korea, and IBM Korea also recorded a dividend payout ratio of more than 80 percent.
Meanwhile, these foreign firms slashed payrolls by 3.9 percent during the past three years. The number of workers at these firms totals 83,645 as of 2013. They also decreased facility investment by 37.6 percent to 2.3 trillion won.
Lee Han-deuk, an economist at LG Economic Research Institute, said Korean firms have relatively low dividend payout ratio. “It is true that foreign firms, especially the U.S. firms, are generous in dividends. They also often choose to do stock buyback. They are much inclined to return the earnings to the shareholders.”
He said it isn’t right to see their dividend payout negatively. “The national wealth flows out as dividends, of course, but the foreign companies have created added value to the national economy in other ways, such as paying wages. It should be dealt with from a neutral perspective, taking into account their contribution to the economy,” the economist said.
Korea Economic Research Institute vice president Bae Sang-kun said foreign firms and conglomerates have different propensities.
“Korean firms are focused on growing their business by making more investment instead of paying dividends, but foreign companies tend to pay dividends right away to return the earnings to the shareholders,” he said.
He explained that while Korea is focused on the corporation itself, foreign companies put emphasis on shareholders.
The low dividend payout ratio of Korean firms has stirred controversy here as the government adopted tax on “excess” corporate internal reserves to stream more corporate gains to households in the form of dividends and salaries.