Samsung Asset Management decided to distribute the retained dividends that have not been distributed by its exchange-traded funds (ETFs) tracking the Standard & Poor's (S&P) 500 Index and the NASDAQ 100 Index over 15 quarters. While the distribution amount will increase, some investors are concerned that it will be 'self-cannibalizing' when considering the loss of distribution.
According to the financial investment industry on the 9th, KODEX S&P 500 and KODEX NASDAQ 100 have switched from an automatic reinvestment (Total Return) method to a distribution payout (Price Return) method from January this year. Both ETFs will pay dividends based on the last business days of January, April, July, and October. On the 7th, they paid 56 won per share for KODEX S&P 500 and 33 won for KODEX NASDAQ 100 as the first dividend.
KODEX S&P 500 and KODEX NASDAQ 100 will distribute retained dividends that have not been distributed since July over 15 quarters. The distribution rate of retained dividends is about 0.27% relative to the net worth of the payment quarter, and KODEX NASDAQ 100 is about 0.14%.
Although it implies that future dividends will increase, there are complaints in the discussion forums for both ETF stocks. This is because as the ETFs distribute dividends, their net worth decreases. Net worth refers to the value of the assets held by the ETF minus liabilities. If net worth decreases, the ETF's share price will also be adjusted accordingly. Considering this, some investors argue that it would be more beneficial for both KODEX S&P 500 and KODEX NASDAQ 100 to retain their retained dividends.
An investor in KODEX S&P 500 remarked, 'Considering the exchange costs incurred during the process of converting retained dividends to be paid in won, or the transaction costs when purchasing additional ETF shares with the received dividends, wouldn't it be more advantageous to just leave it as is?'
Samsung Asset Management explained that it is more important to clarify the principles of dividend distribution. They concluded that it is appropriate to pay retained dividends as distributions in line with the switch to the Price Return method rather than holding them without a special reason.
A representative of Samsung Asset Management stated, 'After considering various perspectives on dividend payment methods with law firms and tax agencies, we concluded that it is appropriate to distribute retained dividends to investors,' and added, 'We decided to pay it out in installments over 15 quarters, considering the impact on net worth.' They also noted, 'We announced this before July to ensure investors have ample time to assess their options.'
There are also investors raising concerns about tax issues. Unlike individual retirement pensions (IRP) and individual comprehensive asset management accounts (ISA) that allow for tax deferral, it is pointed out that in the case of investing in KODEX S&P 500 and KODEX NASDAQ 100 via general accounts, net worth decreases with ETFs' dividends while the tax on dividend income only increases.
However, when investing 10 million won in KODEX S&P 500, the increase in dividend income tax is around 4,100 won per quarter. A representative of Samsung Asset Management stated, 'Clients investing through ISA or IRP can continue to enjoy tax deferral as before, and even in general accounts, the difference won't be significant since taxes were already imposed at the time of sale.'
Since its listing in April 2021, KODEX S&P 500 has been operated under the Total Return method. The Total Return method aims for compounding effect by reinvesting received dividends rather than paying them out as distributions. However, with the revision of the Income Tax Act enforcement ordinance, starting in July, dividends generated from overseas stock ETFs must be settled and distributed at least once a year, making the Total Return method impossible. This is the background for Samsung Asset Management switching KODEX S&P 500 and KODEX NASDAQ 100 to the Price Return method from January this year.
Given that many investors of both KODEX S&P 500 and KODEX NASDAQ 100 are optimistic about stock price increases due to index gains rather than dividend expectations, the future impact of trends in the U.S. stock market on supply and demand is expected to be significant. Following the announcement of the new dividend policy for KODEX S&P 500 and KODEX NASDAQ 100, the buying trend among individual investors has continued. According to the Korea Exchange, from the 7th to the previous day, individuals purchased a net 13.8 billion won and 7.1 billion won worth of KODEX NASDAQ 100.