Friendly to Shareholders

Samsung Electronics suggested raising a dividend target to about four trillion won (US$3.6 billion) this year.
Samsung Electronics suggested raising a dividend target to about four trillion won (US$3.6 billion) this year.

 

Samsung Electronics held a board of directors meeting on November 29 and announced a plan to improve overall shareholder value including its shareholder return policies. The shareholder value enhancement plan announced this week will further strengthen the shareholder return policy announced last October.

“Most of all, Samsung Electronics is reviewing ways to optimize shareholder value including a possibility of becoming a holding company and the expected effects of being listing on overseas stock markets,” said a representative of Samsung Electronics. "This process will require long-term review processes at various stages.” Samsung Electronics will give external experts consulting work on the matter and will decide the final draft after a review period of at least six months, the representative explained.

Samsung Electronics has recently increased its dividend volumes to meet the demands of domestic and overseas shareholders. Its annual cash dividends, which were about 1.2 trillion won (US$1.08 billion) in 2012, rose to nearly three trillion won (US$2.7 billion) in 2011 despite a crisis of falling business performances in 2014 and exceeded three trillion won (US$2.7 billion) last year. On November 29 of this year, Samsung Electronics suggested raising a dividend target to about four trillion won (US$3.6 billion) this year. The company explained that the figure rose 36% from last year and the dividend per share is 28,500 won (US$256).

Shareholders are also positively responding to a new policy of pouring 50% of the annual free cash flow this year and next year to pay large-scale dividends and to buy treasury shares. Last year, Samsung Electronics announced that it would utilize 30 percent to 50 percent of its free cash flow for shareholder returns and the company further increased its size. Samsung Electronics will pay dividends with 50% of its surplus cash flow and use the remaining funds to purchase treasury stocks this year. They will use 800 billion won (US$720 million) which is the surplus carried over from last year for the purchase, too. All treasury shares to be purchased will be cancelled. Generally, if treasury stocks are purchased and cancelled, the value of existing shareholders' stakes will increase.

In October last year, Samsung Electronics announced a three-year shareholder return policy. Samsung Electronics has carried out a special stock repurchase and cancellation program to dump treasury stocks of 11.4 trillion won (US$10.2 billion), which was the biggest in its history four times from October last year to the third and fourth quarters of this year. “We will continue to improve its mid- to long-term shareholder return policies after 2018,” said a representative of Samsung Electronics. “We will also make a new stockholder return policy public when the results of a review of the company’s transformation into a holding company come out. Samsung Electronics will maintain net cash of around 65 trillion won (US$58.5 billion) to 70 trillion won (US$63.0 billion) for facility investment, operating capital, and M&As. But the company also suggested a plan to check its cash reserve every three years and pay dividends if the cash reserve exceeds a certain amount.  

Most of all, domestic and foreign investors are paying attention to the fact that Samsung Electronics plans to start to pay quarterly dividends beginning next year. The company will increase the number of annual dividend payments from two to four, and to pay quarterly dividends beginning in the first quarter of 2017. Samsung Electronics already amended its articles of incorporation to allow quarterly dividends at an annual general shareholders' meeting held in March this year. “There is almost no case in which quarterly dividends are carried out through sales activities among listed companies in Korea,” said Kim Kyung-min, a researcher at Daeshin Securities. “POSCO and Hanon Systems started to pay quarterly dividends this year.”

Considering that multinational information technology (IT) companies such as Apple and Intel are making quarterly dividends, Samsung Electronics’s quarterly dividend payment seems to be aimed at securing support from foreign shareholders. This means that the company intended to acquire favorable votes of foreign shareholders who have over the half of the whole stake in the company in the restructuring of its corporate governance structure beyond easing the insecurity of shareholders sparked off by the discontinuation of the Galaxy Note 7.This means that Samsung Electronics changed its attitude to receive support from foreign shareholders before restructuring including its transition to a holding company. The US hedge fund Elliot Management, which had hindered the merger of Samsung C&T last year, has changed its stance to aggressively support Samsung Electronics’ conversion into a holding company.
 

 

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