Dividend Yield on the Decline
The dividend yield of KOSPI fell from 3.17 percent to 1.76 percent from the middle of March to the middle of this month. In most cases, extremely low interest rates lead to more interest in dividend stocks. This year, however, the dividend yield is likely to be less than expected due to the sluggish business performance of many companies.
The market consensus on this year’s cash dividends fell from 31.58 trillion won to 28.24 trillion won for the past eight months. The latest estimate is 4.27 percent lower than last year’s KOSPI cash dividends. In fact, the dividends already decreased 2.9 percent in 2019 due to a decline in business profits.
This year, more than two trillion won have already flowed out of dividend stock funds, which contain high-dividend yield stocks such as bank, securities, oil refining and chemical. Specifically, 267 dividend stock funds with a principal of at least one billion won each recorded a net outflow of 2,421.1 billion won from Jan. 1 to Sep. 15. The outflow amounted to 189.2 billion won in the latest week.
The rates of return of those funds have remained low, too. To be specific, this year’s average return stands at 1.84 percent and that for the past one month is 1.49 percent. During the same periods, stock funds gained 7.36 percent and 1.54 percent, respectively.
The outflow has to do with COVID-19, which caused high-dividend companies to reduce their dividend payments for tighter risk management. For example, the operating profits of many energy companies and industrial material suppliers dropped below zero after a quite stable dividend payment tendency.
Besides, a number of companies failed to pay interim dividends. In June this year, the total interim dividend payment was 2.92 trillion won, down 21 percent from a year ago. SK Innovation, which paid interim dividends in 2017 to 2019, and S-Oil, one of those paying the largest dividends, paid no interim dividends this year with their losses having exceeded one trillion won each in the first quarter. The other examples include Hyundai Motor and Hyundai Mobis, which paid 263 billion won and 94.7 billion won in June 2019, respectively. Doosan gave up paying in the first quarter and Hana Tour paid zero dividends for the first time in 15 years.
IT, game and biotech companies have eclipsed those traditional high-dividend companies this year, which is another reason for the low dividend yield. Especially, bank stocks are failing to recover in spite of the better-than-expected Q2 performance of financial holding companies. The failed recovery has to do with remaining concerns over their financial soundness and the lack of momentum to boost their stock prices.