The KOSPI is the foremost inventory market index of South Korea.

According to international evaluation establishments, it has been assessed that main listed corporations in South Korea’s KOSPI 200 index considerably lag behind their counterparts in Japan’s Nikkei 225 index in varied dividend insurance policies. This evaluation means that it’s needed to handle the backward dividend practices of South Korean corporations for the success of the federal government’s Value-Up program.

According to the monetary funding business on May 9, Global Market Intelligence of Standard & Poor’s, a world monetary data supplier, said in its report on the “South Korean Corporate Value-Up Program” that “South Korea’s dividend practices, which lag behind global standards in several aspects, are obstacles that the value-up program needs to overcome.”

S&P Global has evaluated that South Korea lags behind Japan in nearly all facets, together with predictability, consistency, and profitability, in terms of dividend practices. First, relating to predictability, South Korea’s dividend coverage growth is criticized for being insufficient. S&P identified that solely 110 out of the KOSPI 200 corporations, or 55 p.c, had clear dividend insurance policies as of April this 12 months. In distinction, the Nikkei 225 has 170 corporations, or 76 p.c, working with quantified dividend insurance policies.

There can be a major distinction within the frequency of interim dividends. Based on the fiscal 12 months 2023, 88 p.c of the businesses listed within the Nikkei 225 paid interim dividends. However, solely 8 p.c within the KOSPI 200 offered interim dividends. Even when mixed with quarterly dividends of seven p.c, it amounted to solely 15 p.c.

Even in difficult enterprise situations, steadily growing dividends could be a strategy to achieve shareholder belief. However, home corporations additionally lag behind Japan on this side. According to S&P Global evaluation, among the many corporations listed within the Nikkei 225 from 2014 to final 12 months, 94 corporations, or 44 p.c, didn’t reduce dividends even as soon as. When mixed with those who diminished dividends as soon as (25 p.c) or twice (12 p.c) it reaches 81 p.c. Over the previous decade, Japan has been capable of safe investor confidence by constantly pursuing dividend-related insurance policies primarily based on steady money flows.

On the opposite hand, solely 35 out of the KOSPI 200 corporations, or 18 p.c, didn’t scale back dividends. Since 2014, 78 corporations, or 39 p.c, have diminished dividends three or extra instances, and there are even 22 corporations, or 11 p.c, that didn’t distribute dividends in any respect. Academia explains that when corporations scale back dividend payouts, it will probably sign tough enterprise situations, doubtlessly attractive buyers to promote their holdings.

Particularly, South Korea had a better proportion of corporations, 28 p.c, in comparison with Japan’s 16 p.c, that have been unable to foretell dividend payouts yearly. The variety of corporations excluded from the evaluation resulting from not paying dividends for over three years was considerably greater in South Korea, with 46 corporations, or 30 p.c, in comparison with simply 5 corporations, or 2 p.c, in Japan, exceeding by over 9 instances. In truth, LG Energy Solution, ranked third within the KOSPI market capitalization, and Samsung Biologics, ranked fourth, don’t pay dividends.

S&P Global evaluation discovered that the dividend payout ratio in Japan is no less than 10 p.c greater although there may be not a major distinction within the common return on fairness (ROE) ranges between the KOSPI 200 and the Nikkei 225. This means that it’s not an absence of capability however moderately an absence of willingness to pay dividends.

The South Korean authorities can be implementing varied insurance policies to enhance the dividend tradition. The not too long ago introduced Value-up Disclosure Guidelines additionally enable for the disclosure of indicators akin to dividend quantity, dividend payout ratio, and dividend yield.

However, it stays unsure whether or not the shareholder-first tradition, akin to concrete formulation of dividend insurance policies, can really take root domestically. While main corporations inside the prime 10 market capitalizations are growing dividends regardless of revenue declines or implementing energetic shareholder return insurance policies, significantly led by monetary holding corporations, it’s deemed difficult to attain widespread adoption throughout the complete market.

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