As expectations grow over South Korea–U.S. tariff talks, Hyundai Motor shares are extending gains, and investors are also flocking to preferred shares. Investors see appeal in their undervaluation versus common shares, along with higher dividend yields and anticipated share buybacks, which appear to be boosting their investment appeal.
According to the Korea Exchange (KRX) on the 26th, over the past week (Oct. 20–24), Hyundai Motor's share price rose 3.91%. Over the same period, Hyundai Motor preferred shares gained more: Hyundai Motor 1st preferred rose 5.89%, Hyundai Motor 3rd preferred type B rose 5.2%, and Hyundai Motor 2nd preferred type B climbed 6.65%.
Foreign investors went "shopping" for preferred shares, driving the rally. While foreigners were net sellers of 147.5 billion won in Hyundai Motor common shares over the period, they turned to net buying in preferreds. They net bought 2 billion won of "Hyundai Motor 1st preferred," 2.3 billion won of "Hyundai Motor 3rd preferred type B," and 26.8 billion won of "Hyundai Motor 2nd preferred type B."
The strength in preferred shares reflects their undervaluation. Based on the previous trading day's close, the price gap between Hyundai Motor common (252,500 won) and Hyundai Motor 3rd preferred type B (188,300 won) is about 25%, and as common shares have risen recently, buying has concentrated in preferreds with relatively more upside. Even after common shares rise, if preferreds fail to catch up, flows tend to come in to narrow the gap.
The market expects that if the automotive item tariff that has weighed on Hyundai Motor shares is cut to 15% from 25%, both earnings and the stock price will be positively affected. Kim Gui-yeon, an analyst at Daishin Securities Co., said, "If the auto tariff is finalized at 15% in the South Korea–U.S. tariff talks, Hyundai Motor could expect about 240 billion won in additional profit next year."
Anticipation of year-end share buybacks is also at play. Hyundai Motor plans to buy back a total of 4 trillion won worth of common and preferred shares over three years through 2027. The company aims to achieve a minimum annual total shareholder return (TSR) of 35% by combining dividends with share repurchases and cancellations.
Brokerages expect Hyundai Motor to begin full-scale buybacks starting at the end of this year. Lim Eun-young, an analyst at Samsung Securities, said, "If tariff uncertainty is resolved, buybacks in 2025 could ramp up from the end of the year."
This round of buybacks is expected to be carried out in a way that favors preferred shares. While Hyundai Motor has previously repurchased shares based on market capitalization weight, starting this year it plans to increase the portion of preferred share purchases to narrow the gap between common and preferred shares. As a result, unlike before, preferreds are expected to see relatively greater benefits.
The dividend appeal is also strong. The dividend yield on Hyundai Motor preferred shares is about 6.36%, higher than the 4.75% yield on the common shares. If share buybacks proceed, per-share dividends could increase, amplifying the dividend effect. Preferred shares lack voting rights but offer higher dividend rates than common shares, and their lower prices make the effective dividend yield feel higher.
The government's policy to tax dividend income separately is also expected to be a positive. Under the government's tax reform plan, dividend income from "high-dividend corporations," defined as those with a payout ratio of at least 25% and dividends at least 5% higher than the three-year average, can be taxed separately from comprehensive income, and Hyundai Motor is included.
However, investors should note that preferred shares can be highly volatile. A source in the financial investment industry said, "Preferred shares have less float than common shares, so prices can swing widely," adding, "In particular, uncertainty could increase around the Asia-Pacific Economic Cooperation (APEC) summit depending on whether the tariff talks are concluded."