"Samsung Electronics Eyes Special Dividend of Up to 125 Trillion Won"...Foreign Investors Shift from Common to Preferred Shares

Attractiveness of Preferred Shares Emerges as Price Gap with Common Shares Widens

Preferred Share Dividend Yield Could Approach 10% with Special Dividend

Yonhap News Agency

Foreign investors, who have been net sellers of Samsung Electronics common shares for several days, are drawing attention for increasing their stake in preferred shares. Analysts say this trend reflects growing expectations for preferred shares, which offer higher dividend yields, as the gap between common and preferred shares widens due to the sharp rise in common share prices. With Samsung Electronics' earnings expected to improve significantly this year, a large-scale shareholder return is also anticipated.

Widening Gap Between Common and Preferred Shares Highlights the Appeal of Preferred Shares

According to the Korea Exchange on June 18, the foreign ownership ratio of Samsung Electronics common shares stood at 47.6% as of June 16, marking the lowest level since August 2013. The foreign ownership ratio, which was as high as 52.3% at the beginning of the year, has dropped nearly 5 percentage points in just half a year. This sharp decline is attributed to foreigners taking profits after Samsung Electronics' stock price surged more than 170% this year.

In contrast, the foreign ownership ratio of Samsung Electronics preferred shares reached 76.8%. This figure has remained largely unchanged from 77.5% at the start of the year, and is even up 4 percentage points compared to 73% in June last year. Despite the preferred share price soaring by 150% this year, foreigners have not been net sellers of preferred shares, unlike with common shares.

Securities analysts explain that expectations for large-scale shareholder returns at Samsung Electronics are being reflected in the foreign ownership of preferred shares. As the company is likely to post record-high earnings this year, the dividend payout is also expected to reach an all-time high, making preferred shares more attractive.

According to Mirae Asset Securities, Samsung Electronics' annual free cash flow (FCF) this year is expected to exceed 268 trillion won. Samsung Electronics operates a shareholder policy of returning 50% of FCF. The company pays a fixed annual dividend of 980 billion won, with any excess distributed as a special dividend. According to securities industry scenarios, the special dividend for this settlement period could reach up to 125 trillion won. Furthermore, there are expectations that from next year, the fixed regular dividend may be raised and the proportion of FCF returned to shareholders may be increased, making shareholder return policies more attractive than ever.

Preferred Share Dividend Yield Could Approach 10% if Special Dividend Is Paid

The excessive gap between common and preferred share prices also enhances the appeal of preferred shares. Currently, the discount rate for Samsung Electronics preferred shares compared to common shares is about 33%, far above the historical average of 22%. In March 2021, ahead of a special dividend, this discount rate narrowed sharply to around 5%, suggesting that the current gap could narrow again if a special dividend is announced.

Because preferred shares are priced lower than common shares, investors can obtain a larger shareholding and higher dividend yield for the same investment amount. If the large-scale shareholder return plan is implemented, securities firms project that, based on current prices, the expected dividend yield for common shares will be between 3.7% and 6.5%, while preferred shares could offer a high dividend yield of up to 10.1%.

Kwon Soonho, a researcher at Daishin Securities, said, "The current discount rate for Samsung Electronics preferred shares has widened to as much as 35%, reflecting the market's perception that the opportunity cost of giving up voting rights -- the so-called voting rights premium -- is significant." Kwon added, "Even as foreigners have been net sellers of Samsung Electronics common shares, their holdings of preferred shares have increased. If a proactive shareholder return policy is announced, this uncertainty will lessen, and both the voting rights premium and the preferred share discount may narrow together."

This content was produced with the assistance of AI translation services.