Shareholder activism driving firms to raise dividends

The Korea Times

The Korea Times

Finance

Sun, December 10, 2023 | 00:00

Economy

Shareholder activism driving firms to raise dividends

Posted : 2019-02-15 16:11

Updated : 2019-02-16 09:31

By Jhoo Dong-chan

A growing number of companies have decided to increase dividends for their shareholders, despite their lackluster financial performances, as the National Pension Service (NPS) and other institutional investors seek greater influence in management, according to industry analysts Friday.

Major investors started engaging more actively in firms' decision-making processes since the NPS, the nation's largest institutional investor, adopted a stewardship code last July to be more proactively involved in corporate governance in nearly 300 local companies the agency has invested in.

The stewardship code, pledged by President Moon Jae-in during his election campaign, is a set of guidelines that encourage major shareholders to push for better corporate governance and higher dividends from the companies they invest in.

Thanks to such shareholder activism, more firms have announced their plans to pay their shareholders more dividend this year.

Mobile carrier KT said in its recent regulatory filing that it posted a disappointing operating profit of 1.26 trillion ($1.17 billion) last year, down 110 billion won from the year before.

Despite its disappointing earnings last year, the firm said Feb. 12 that it paid out 269.6 billion won in dividends, up 24.6 billion won from the previous year's figure.

It was also the largest dividend payment ever made to the firm's shareholders since 2012. KT's largest shareholder is the NPS.

Steelmaker POSCO also suffered over a 1 trillion won decline in net profit last year, but decided to pay 400 billion won in dividends this year. The figure is up 120 billion won, or 43 percent, from a year earlier.

Owning a 10.72 percent stake, the NPS is also the largest shareholder of POSCO.

Hyundai Green Food, a de facto holding company of Hyundai Department Store, gained market attention for its decision to raise its dividends by 160 percent to 18.3 billion won this year.

The NPS is the firm's second-largest shareholder with a 12.82 percent stake, and included it in the list of low-dividend companies last year.

Not only the NPS but also other institutional shareholders actively exercised their right to receive more dividends.

KB Asset Management, an asset management unit of the financial group, also sent a letter to Gwangju Shinsegae several times last year to receive more dividends.

Responding to the asset management firm's demands, the local department store unit of Shinsegae announced its decision to raise its dividends by 140 percent to 3,000 won per share this year.

According to the Korea Exchange, 80 KOSPI-listed firms have announced their decisions to pay more dividends this year.

"Korean firms have been stingy in paying dividends compared to firms in other countries," Yonsei University professor Sun Tae-yoon said.

"However, raising dividends does not always guarantee strengthening a firm's value. Firms should consider their financial soundness before paying dividends."

Sungkyunkwan University law professor Choi June-sun said such shareholder activism could be used as a tool to "tame" Korean businesses.

"The stewardship code itself is a self-regulating norm. It will be okay if it operates as it was intended," he said.

"However, it is highly likely the agency's stewardship code could be used as a tool of the government and ruling party to change firms' governance structures."

jhoo@koreatimes.co.kr