With the ruling and opposition parties agreeing on separate taxation for dividend income, an analysis said the effective returns on bank stocks, a representative high-dividend sector, will rise.
Eun Kyung-wan, a researcher at Shinhan Investment Corp., said, "As most banks with shareholder return policies focused on share buybacks and cancellations now have more reason to expand cash dividends due to this tax reform, the effective shareholder returns are expected to rise thanks to various policy effects such as the application of separate taxation for dividend income and the implementation of reduced dividends."
Under the bipartisan agreement, separate taxation will apply to dividend income received from high-dividend corporations by bracket: ▲ 14% for 20 million won or less ▲ 20% for over 20 million won up to 300 million won ▲ 25% for over 300 million won up to 5 billion won ▲ 30% for over 5 billion won (excluding local income tax).
High-dividend corporations subject to the policy are ▲ those with a payout ratio of 40% or higher (excellent type) ▲ and those with a payout ratio of 25% or higher that increased dividends by 10% or more from a year earlier. The start date is moved up by one year from the government's original plan, beginning with settlement of account dividends for 2026.
Eun estimated, "The additional cash dividend payments in the fourth quarter (Oct.–Dec.) needed to meet the separate taxation requirements for dividend income are around 440 billion won," adding, "KB Financial, Shinhan Financial Group, and Hana Financial Group, which are implementing equal quarterly dividends, will account for most of it."
However, Eun also explained that the burden could ease compared with current estimates, given that these banks face high fourth-quarter earnings volatility due to factors such as the Hong Kong H-index ELS penalty surcharge, early retirement expense, and additional provision accumulation.
Eun said, "Large banks are also shifting to a forward-leaning stance on reduced dividend policies," adding, "While the improvement in shareholder return rates is not expected to be large, effective shareholder returns will rise due to the policy effect." Eun then suggested KB Financial as the top pick in the banking sector.