Stewardship Code Causes More Companies to Pay Large Dividends

Market research firm FnGuide said on March 8 that a total of 36 KOSPI-listed companies posted a cash dividend yield of 5 percent or more last year and the number of such companies doubled in one year. During the same period, a total of 458 companies paid dividends, including 23 that paid their first dividends.

Experts point out that institutional investors will demand more dividends this year with the stewardship code included in major pension funds’ external manager evaluation criteria. “The number of institutions that adopted the stewardship code increased from 73 to 120 from the end of 2018 to early February this year,” Korea Investment & Securities explained, adding, “Enterprises’ dividend payout ratios are expected to increase and the undervaluation of KOSPI is expected to be addressed gradually.”

Still, as of the end of last year, South Korean companies’ dividend payout ratio based on the MSCI index stood at 33.5 percent, much lower than Britain’s 82 percent, France’s 63.7 percent, the United States’ 51.5 percent and Germany’s 47.5 percent.

With low interest rates likely to continue for a while, individual as well as institutional investors are likely to prefer large dividends and enterprises are expected to increase their dividends. “More and more investors are increasing their preference for dividends,” said the Korea Capital Market Institute, adding, “Companies would be well advised to return some of their cash to shareholders in that a slow growth is continuing and new investment opportunities for future growth are becoming harder and harder to come by.”