Financial authorities are pushing a value-up policy to resolve the chronic undervaluation of the Korean stock market, and corporations that decide to increase dividends are appearing one after another. However, concerns are being raised about dividends made in the context of deteriorating performance. In particular, many of the companies that have decided to pay substantial dividends despite poor performance often have high ownership stakes from their owner families, raising the point that they are using the value-up program as a pretext to enrich themselves.
Recently, Shinsegae announced an increased dividend plan alongside its deteriorated performance. Shinsegae reported a 44% drop in net profit last year due to sluggish duty-free operations, but stated that it would allocate 4,500 won per share as dividends. Last year, Shinsegae had allocated 4,000 won per share.
LOTTE Corporation, which turned into a loss last year with a net loss of 1.8 trillion won from its subsidiary LOTTE Chemical, also decided to allocate 1,200 won per share as dividends. Emart, which reported a net loss nearing 600 billion won last year, also decided on dividends of 2,000 won per share, stating that it would raise this year's dividend to a maximum of 2,500 won as part of its "corporate value enhancement plan."
GS Group's holding company GS has also emerged as a surprising high-dividend stock. GS decided to allocate 2,700 won per share as dividends. Considering that the stock price moved around 38,000 won before the dividend announcement, the yield is 7.0%. The previous year's dividend was 2,500 won per share. However, GS's performance is also poor. Last year, the net profit of GS fell to 842.8 billion won, half of what it was a year earlier.
The key to the dividend resources shared among shareholders is the net profit of the current period. If the profit decreases, the capacity for dividends will inevitably diminish.
Nonetheless, the reason these listed companies have expanded dividends is interpreted as a move by owner families to secure necessary cash. Both GS and Shinsegae are corporate groups undergoing succession. Due to massive taxes imposed during the process of inheriting management rights and equity, cash is needed.
In the case of GS, Honorary Chairman Huh Chang-soo and the Huh family hold over 53% of the equity. For Shinsegae, Chairman Jeong Yu-kyung owns 18.6% of the company's equity, while Honorary Chairwoman Lee Myung-hee holds 10.0%. The fact that both GS and Shinsegae are holding companies that do not engage in separate business activities also appears to have influenced the expansion of dividends.
SK Innovation, which is not a holding company but a refining company, also announced an expansion of dividends despite turning into a large deficit. For the year 2023, it decided to buy back its own stock worth 790 billion won instead of dividends, but this time decided to allocate 2,000 won per share as dividends. It plans to spend 297.5 billion won as dividend resources.
An industry insider noted, "In the past, dividends from large corporations received criticism as 'enriching controlling shareholders,' but the atmosphere has changed since financial authorities encouraged corporate dividends," and added, "Some listed companies are using value-up as a pretext to secure profits."
Regardless of the reason, corporations that are working to return value to shareholders by expanding dividends have become exemplary cases of the value-up programs promoted by financial authorities. The Korea Exchange regards shareholder return, including dividends, as an important policy for value enhancement. Last year, it promoted that corporate shareholder returns are strengthening by disclosing that the total dividends from listed companies in the first half of the year slightly increased to 34 trillion won compared to the same period last year.
However, as the corporate value enhancement plans focus heavily on easy dividends, concerns within financial authorities are escalating. The core of the value-up policy promoted by financial authorities is to actively communicate with shareholders in line with corporate characteristics to resolve the Korea discount, but companies' focus on expanding dividends is creating a situation where 'shareholder return equals value-up,' putting pressure on the authorities implementing the policy.
A representative from the Korea Exchange stated, "Our stock market has a high proportion of manufacturing centered on the equipment industry, and in their case, unconditionally expanding dividends could actually reduce investment capacity," adding, "Finding a balance that implements the value enhancement plans tailored to corporate characteristics and expands shareholder return if there are shortcomings is the right direction for value-up."
An analyst from a securities firm said, "I commented negatively when a company that seemed to have poor performance last year and does not seem to have any solutions significantly expanded its dividends, and I received strong objections from the company," adding, "Recently, as the trend of expanding dividends has spread among CEOs, concerns about side effects are on the rise."