A 'dividends enhancement-type' passive exchange-traded fund (ETF) that uses stock buybacks as an investment criterion will be launched in September. Unlike existing high-dividend ETFs primarily focused on dividend payouts, this product features a differentiated structure by allowing investors to benefit from capital gains due to stock buybacks and cancellations.
According to the financial investment industry on the 22nd, Hanwha Asset Management plans to list the 'PLUS stock buyback high dividend stock' ETF next month. It is currently pending final review from the Korea Exchange, with an initial setup amount of 8 billion won. The ETF will undergo rebalancing twice a year (in June and December).
The domestic high-dividend ETFs in the market are structured around corporations with high dividend payout ratios, and the total shareholder return ratio (the total amount of dividends plus stock buybacks and cancellations divided by net profit) is not reflected. However, some corporations appear to focus more on stock buybacks than on dividends, prompting Hanwha Asset Management to design this product, noting that if stock buybacks lead to cancellations, the earnings per share (EPS) could increase and positively affect stock prices.
In the case of Meritz Financial Group, this year's cash dividend is 1,350 won per common share, with a dividend yield of only 1.2%. However, this year alone, the company has purchased 551.4 billion won worth of its own shares and plans to cancel the entire amount on the 29th. On the 20th, it disclosed that it had signed a trust contract for the acquisition of its own shares amounting to 700 billion won, demonstrating an active approach to stock buybacks and cancellations. As a result, the stock price of Meritz Financial Group has risen by more than 20% this year.
Hanwha Asset Management noted that Meritz Financial Group is not included in its 'PLUS high dividend stock' ETF, but the company is included in the newly launched product's top holdings.
In addition to Meritz Financial Group, key holdings include Hyundai Motor Company, Misto Holdings, Korea Zinc, and Doosan Bobcat.
Kim Jung-seop, head of the ETF business division at Hanwha Asset Management, said, 'Given the likelihood that this year's bill to mandate stock cancellations will be processed, stock buybacks alone could lead to cancellation effects.'
Hanwha Asset Management stated that the dividends of the new ETF will be paid on the 15th of each month, and if investors also invest in the PLUS high dividend stock, they can receive revenue from dividends twice a month.
Meanwhile, in line with the policy to strengthen shareholder returns, the scale of stock buybacks and cancellations by recently listed companies has been on the rise. According to the Korea Exchange, from the beginning of this year until July, the amount of stock buybacks by domestic listed companies reached 16 trillion won, while the scale of cancellations amounted to 18.3 trillion won.