A recent report indicated that the so-called 'advance dividends and subsequent investment' corporations have increased concerning the settlement of account dividends for the 2024 business year. The concentration of dividend ex-dates at the end of the year is expected to lessen the impact on the market.
'Advance dividends and subsequent investment' refers to setting the dividend base date after the board of directors confirms the settlement of account dividends instead of at the end of the year. In simple terms, it moves the base date for receiving settlement of account dividends from the end of the year (December 31) to around the regular shareholders' meeting in February to April.
According to the Financial Supervisory Service's electronic disclosure system (DART) on the 16th, 98 companies listed on the KOSPI market have disclosed plans for advance dividends and subsequent investment as of the 13th (excluding preferred stocks). This number has exceeded 74 companies during the same period last year. On that morning, companies such as Hyundai Engineering & Construction, Ottogi, Lotte Wellfood, Korean Re, Hansung, and Hyusteel decided to determine the dividend base date at a later board meeting, indicating a continued increase in the number of advance dividends and subsequent investment corporations.
Previously, the dividend base date was set before the board meeting, forcing investors to trade stocks without knowing either the dividend amount or whether they would receive dividends. With the shift to advance dividends and subsequent investment, investors can now evaluate the company's dividend status, amount, and yield (dividends per share ÷ stock price) before purchasing shares.
To avoid the so-called 'blind dividends' since last year, financial authorities have encouraged improvements in the dividend process, prompting corporations to amend related charters. During the settlement of account dividends for the 2023 business year, financial companies such as banks, securities, and insurance actively adopted advance dividends and subsequent investment.
This year, manufacturing and service corporations have also adopted advance dividends and subsequent investment. HD Hyundai Group is a notable example. The company decided to determine the dividend status and amount through future board meetings and regular shareholders' meetings. In March 2021, the HD Hyundai Group amended its charter to set the dividend base date from the end of the settlement period (December 31) to a date determined by the board, but it had maintained the dividend base date at the end of the year until now.
In addition, companies such as GS Group and LX Group (LX Holdings), as well as Kangwon Land and GKL, have also modified their charters during regular shareholders' meetings in March to establish the dividend base date for the settlement of account dividends in the 2024 business year at a board meeting scheduled for the first quarter of 2025.
Research findings have also suggested that as the number of advance dividends and subsequent investment corporations increases, the impact of dividend ex-dates at the end of the year will decrease. According to the Capital Market Research Institute, companies listed on the KOSPI market that set December 31 as the dividend base date saw an average stock price decline of 0.43% on the ex-dividend date compared to the previous day. In contrast, companies that chose a date other than the end of the year as the dividend base date experienced a mere 0.18% decline.
Senior researcher Kang Sohyun from the Capital Market Research Institute noted in a report, 'If the number of corporations implementing the improved dividend base date system (advance dividends and subsequent investment) increases, it is expected to alleviate the concentration of base dates at the end of the year, thereby reducing the phenomenon where stock prices decline sharply on specific days due to the dividend ex-date.'
However, many companies still set the year-end as the dividend base date. Previously, Celltrion decided on a cash dividend of 750 won per common share and a stock dividend of 0.05 shares, with the dividend base date set for the 31st. Considering the time required for settlement (two trading days), investors must purchase Celltrion shares by the 26th to receive dividends.
With a variety of companies setting year-end as the dividend base date, advance dividends and subsequent investment corporations, and companies implementing interim dividends, investors can look for opportunities considering the time difference. Firms with significant dividends can also consider investments based on the spread between cash and futures prices.
Nonetheless, since high-dividend stocks generally adopt advance dividends and subsequent investment, there is advice to watch the period in January to February when boards meet to determine dividends. Kim Jong-young, a researcher at IBK Investment & Securities, stated, 'With communication, finance, and automotive industries' high-dividend stocks setting their dividend base dates after the end of the year, investing in dividend plays will be more attractive in January and February.' He added, 'Since dividends are typically disclosed two weeks before the base date, dividend investors need to check regularly.'