Opposing Gov’t Policy
The Ministry of Health & Welfare and the National Pension Service (NPS) are baffled by the policy of the Ministry of Strategy & Finance for greater dividend payment by companies with a lower payout ratio.
“Calling for increased dividend payments may be regarded as intervention in business,” the NPS said on Feb. 24. This is in response to the Ministry of Strategy & Finance’s plan to disclose the list of companies with a lower dividend payout ratio in the interest of shareholders’ rights. The Ministry of Health & Welfare has the same stance as the NPS. Its official position is that companies with lots of cash should not be seen as low-payout ratio companies if they are planning on long-term investment.
In contrast, the Ministry of Strategy & Finance is adhering to a higher dividend payout ratio. Deputy Prime Minister Choi Kyung-hwan, head of the Ministry, has stressed the necessity of the goal as a method for boosting the domestic stock market and sharing corporate income with the household sector. Some tax policy measures to this end have been put into force since the beginning of this year with the request for higher dividends included in this year’s economic policy.
According to the Korea Capital Market Institute, the average dividend yield and payout ratios of KOSPI-listed companies were 1.2 percent and 18.8 percent in 2013, respectively. The percentages are indeed lower than in many other countries. Still, it also should be noted that most of increased dividends have ended up in the hands of foreign investors, conglomerate owners and major stockholders without flowing to individual investors.
According to the Bank of Korea, Korean companies’ dividend payments to foreigners amounted to US$10.28 billion last year, the highest ever since statistics began to be recorded in 1980. In the top four groups of Samsung, Hyundai Motor, SK, and LG, the combined amount increased from 2.8297 trillion won (US$2.5716 billion) to 3.8128 trillion won (US$3.4654 billion) between last year and this year.