Jackpots

 

Preferred stocks are drawing the attention of investors, as Korean companies are expected to record the largest dividend payments in history this year.

These days, dividend funds, which showed stable earnings in spite of stock market fluctuations this year, are increasing their ratios of preferred stocks. Investors’ interest in dividends is expected to keep growing as preferred stocks come with a higher dividend yield while lacking voting rights.

According to industry sources, seven out of this year’s top 10 domestic dividend funds in terms of rate of return, each having a size of at least 1 billion won (US$865,390), invested in the preferred stocks of LG Chem as of Aug. 3. Six of them invested in those of Amore Pacific and Hyundai Motor Company, and five in those of Samsung Electronics, CJ, Samsung Fire & Marine Insurance and CJ Cheil Jedang.

Their aggressive investment in these preferred stocks is because the stock prices are about half that of the corresponding common stocks. Under the circumstances, an increasing number of preferred stocks are showing higher stock price growth rates than common stocks. For example, the growth rates have been 22.04 vs. 0.78 percent since October for Amore Pacific, and 1.96 vs. -10 percent or so for CJ. The preferred stocks of Samsung Electronics exceeded its common stocks by a margin of 6.88 percentage points during the same period, too.

Samsung Electronics and Hyundai Motor Company are engaged in an aggressive shareholder return policy, and institutional investors are increasing their investment in the preferred stocks of these companies in response. Samsung Electronics recently announced that it would use 30 to 50 percent of its free cash flow for 2015 to 2017 for dividend payment purposes. Hyundai Motor Company is planning to raise its pay-out ratio to 15 percent in the short term and to 25 to 30 percent in the long term.

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