[Real Investment Strategy] "In the End, the Answer Is Shareholder Returns"...Investment Tactics to Navigate Volatile Markets

Share Buybacks and Dividends Draw Attention
Record-High Shareholder Returns Expected from Samsung Electronics and SK hynix
Secure Reliable Cash Flow through Securities and Preferred Stocks

Recently, as the domestic stock market has experienced heightened volatility, investing in companies with strengthened "shareholder return policies" is drawing attention. With the upper end of the market restricted and stock prices swinging sharply, actual cash flows distributed to shareholders and per-share value gains via treasury share cancellations are regarded as the most reliable alternatives. This year, the lower bound for the stock prices of high-quality shareholder return stocks is growing stronger thanks to policy supports such as amendments to the Commercial Act, mandatory cancellation of treasury shares, and the introduction of separate taxation for dividend income.

According to the Korea Exchange on August 19, as of the end of last month, a total of 747 companies (348 listed on KOSPI and 399 on KOSDAQ) have participated in "Value-up" disclosures, accounting for 84.6% of the total market capitalization.

The amount of cash flowing back to shareholders has risen significantly. Just last month, about 90 listed companies decided on cash dividends totaling approximately 7.4 trillion won. The cancellation of treasury shares is also active. The four major financial holding companies—Shinhan, KB, Hana, and Woori—have decided on treasury share cancellation worth several hundred billion won each. NAVER (about 1 trillion won) and Mirae Asset Securities (about 500 billion won) have also joined the trend.

There is keen interest in the shareholder return measures of the two leading domestic semiconductor companies as well. In particular, expectations for a large-scale special dividend from Samsung Electronics are escalating. KB Securities estimates that Samsung Electronics' annual shareholder returns could reach at least 100 trillion won and up to 200 trillion won—over 10 times the previous level. According to DS Investment & Securities, the additional funds available for returns based on the company's accumulated free cash flow (FCF) over three years amount to about 131.8 trillion won. If only 15% of this additional fund is distributed as a special dividend, it would add 2,936 won per share, raising the total annual dividend to 4,416 won (with an ordinary share dividend yield of 2.1% and a preferred share yield of 2.9%). If the return ratio rises to 25%, the ordinary share dividend yield would increase to 3.1% (preferred shares 4.2%), and under the maximum scenario of 40%, ordinary shares would reach 4.5% and preferred shares 6.2%.

SK hynix is also in a position to return tens of trillions of won to shareholders. Mirae Asset Securities estimates the company's FCF this year at 180 trillion won and year-end net cash at 173 trillion won. Even retaining 100 trillion won in cash, the available resources would be about 70 to 80 trillion won. Assuming half of this is returned, shareholder returns could amount to about 40 trillion won. The dividend yield is expected to reach up to 3.9%. Samsung Securities projects shareholder returns of 57 trillion won this year and 120 trillion won next year based on 50% of its estimated FCF, with dividend yields forecast at 3.6% for this year and 7.9% for next year.

If you want a certain high dividend immediately, securities stocks—especially preferred shares—are worth watching. According to SK Securities, leading securities firms are expected to report record-high annual profits, boosting their dividend appeal. The anticipated average dividend yield for securities companies is 6.0%, including Mirae Asset Securities at 1.8%, Korea Financial Investment Holdings at 6.7%, Samsung Securities at 7.4%, NH Investment & Securities at 7.8%, Kiwoom Securities at 7.3%, and Daishin Securities at 4.6%.

In addition to common stocks, preferred shares are an alternative from a dividend perspective. The preferred share dividend yields for Korea Financial Investment Holdings and NH Investment & Securities stand at an attractive 9%. While the trading volume is relatively low, the preferred share gap (premium-discount rate) for Korea Financial Investment Holdings is a favorable 25.4%. Even in the face of a slowdown in performance in the second half of the year, the company is expected to secure dividend capacity based on the strongest earnings power in the sector. For NH Investment & Securities preferred shares, the premium-discount rate is somewhat lower at 10.5%, but a high dividend payout ratio in the high 40% range is expected to provide solid downside protection.

Tax-saving strategies are key to determining your final return. The newly introduced separate taxation for dividend income applies a flat rate of up to 30% on dividends from high-dividend companies instead of the previous comprehensive taxation, substantially reducing the tax burden for high-income investors. If an investor's total annual dividend and interest income is less than 20 million won, taxation is completed with a 14% withholding tax upon comprehensive income tax filing the following year. However, if the total exceeds 20 million won, the income is combined with other earnings—such as wage income—and subject to progressive tax rates ranging from 6% to 45% (plus local taxes).

After picking a strong dividend stock, "timing the purchase" becomes the decisive factor for returns. In the securities industry, the "dividend yield band (rolling Z-Score)" model is used to compare a stock's current position to its five-year historical average dividend yield. Individual investors can check the chart (band) of the stock's dividend yield over the past five years for practical application. If the share price drops excessively and the current dividend yield hits the top of the five-year band (the high-dividend zone), it is considered an undervalued buy signal. Conversely, if the price surges and the yield falls to the bottom, it's seen as a signal to realize gains.

When investing, it's important to be wary of the "dividend trap"—that is, being deceived by a superficial dividend yield. Beware of cases where earnings have collapsed but the dividend yield appears high due to a one-off reduction in dividends, or where the company has abundant liquid assets but lacks commitment to shareholder returns, causing the stock to stagnate over the long term. To identify good dividend stocks, investors should verify factors such as whether the company has made value-enhancing disclosures, the continuous increase of dividends per share (DPS), undervaluation within the dividend yield band, and strong return on equity (ROE).

Daishin Securities analyst Kwon Soonho stated, "Dividend investing is not merely a defensive strategy focused on securing cash flow, but is based on the trust in how much profit a company will return to shareholders. Quantitative analysis of the impact of actual dividend and shareholder return policies on corporate valuation clearly shows the effects of dividends. Regardless of whether a company is value-oriented or growth-oriented, those implementing dividends have demonstrated higher valuations than those that do not." He further added, "Current policies are favorable to dividend stocks and will provide even stronger downside support for corporate dividend payments."

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