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As Samsung Electronics embarks on its largest-ever shareholder return program, analysts say the warmth of its expanded dividends could spread beyond Samsung Group affiliates to lift the broader South Korean stock market.
The thinking is that cash flowing out of Samsung Electronics — passing through Samsung Life Insurance, Samsung Fire and Samsung C&T — could ultimately reach KCC, and in the process push up total dividend payouts across the entire Kospi.
According to the financial investment industry, Samsung Electronics' board approved a total shareholder return target of 90 trillion to 110 trillion won ($80.9 billion) for this year at its Aug. 21 board meeting. The figure follows the company's existing policy of returning 50 percent of cumulative free cash flow over 2024–2026 to shareholders, and represents a record high roughly five times the scale of its 2020 shareholder returns.
Samsung Electronics plans to pay out about 30 trillion won in cash dividends, including its regular third-quarter dividend. How the remaining 52.65 trillion to 72.65 trillion won will be split between cash dividends and share buybacks and cancellations is to be decided in January next year.
The market is particularly focused on how large a share of the remaining funds will go toward cash dividends. That is because Samsung Life Insurance and Samsung Fire hold 8.51 percent and 1.49 percent of Samsung Electronics common shares, respectively, giving them a combined stake of roughly 10 percent.
Hyundai Motor Securities noted that large-scale share cancellations by Samsung Electronics would raise the two financial affiliates' ownership stakes, potentially creating regulatory pressure to adjust their holdings — making it more likely that Samsung Electronics will lean toward cash dividends rather than share cancellations.
The first beneficiaries of the dividends are affiliates that directly hold Samsung Electronics shares. In addition to Samsung Life Insurance and Samsung Fire, Samsung C&T holds a 5.11 percent stake in Samsung Electronics.
KCC does not hold Samsung Electronics shares directly, but it does hold a 10.49 percent stake in Samsung C&T. Samsung Electronics' expanded dividends would flow into Samsung C&T's dividend pool, and if Samsung C&T passes that on to its own shareholders, the benefit would extend to KCC as well.
That said, dividends paid by Samsung Electronics do not flow in full to the shareholders of each affiliate. Samsung Life Insurance targets a medium- to long-term shareholder return ratio of 50 percent, and Samsung Fire similarly aims for a 50 percent return ratio by 2028.
Samsung C&T, by contrast, has a policy of redistributing 60 to 70 percent of dividend income received from affiliates. KCC also uses more than 50 percent of any special dividends it receives from Samsung C&T as the source for its own special dividends. Analysts therefore expect a relatively stronger trickle-down effect at Samsung C&T and KCC, where the link between dividends received and dividends paid out is tighter.
Hyundai Motor Securities laid out three scenarios for Samsung Electronics' total cash dividend this year: 70 trillion won, 90 trillion won and 110 trillion won.
These assume total shareholder returns of 90 trillion won, 100 trillion won and 110 trillion won, respectively, with share buybacks and cancellations set at 20 trillion won, 10 trillion won and zero. The resulting additional year-end special dividends were estimated at 32.65 trillion won, 52.65 trillion won and 72.65 trillion won, respectively.
Taking the middle scenario of 90 trillion won in cash dividends, the ripple effect is substantial. Samsung Electronics' common share dividend would rise by 35.04 trillion won above current market forecasts. On top of that, Hyundai Motor Securities estimated that affiliates would pay out a combined 3.35 trillion won in additional dividends — comprising 1.52 trillion won from Samsung Life Insurance, 248.8 billion won from Samsung Fire, 1.5 trillion won from Samsung C&T and 90.2 billion won from KCC.
As a result, total Kospi common share dividends for this year — currently forecast at 97.3 trillion won — could rise 39.5 percent to 135.69 trillion won.
Even under the most conservative scenario of 70 trillion won in dividends, Kospi payouts would grow 19.4 percent to 116.16 trillion won. Under the upper scenario, in which Samsung Electronics directs all 110 trillion won of shareholder returns into cash dividends, Kospi dividends would swell to 155.73 trillion won — a 60 percent increase over current forecasts.
This reflects Samsung Electronics' outsized weight in the domestic dividend market. Under current market forecasts, the combined common share dividends of Samsung Electronics, Samsung Life Insurance, Samsung Fire, Samsung C&T and KCC are expected to reach 48.1 trillion won this year, accounting for 49.3 percent of total projected Kospi dividends. Of that, Samsung Electronics alone accounts for an expected 44.6 trillion won.
Dividend attractiveness relative to share price is also set to improve markedly. If Samsung Electronics' cash dividend falls in the 70 trillion to 110 trillion won range, the estimated average dividend per share would be between 10,660 won and 16,752 won. Based on Monday's share price, the dividend yield on Samsung Electronics common shares would range from 3.9 to 6.1 percent, and from 5.1 to 8.1 percent on preferred shares. Because preferred shares trade at a relatively lower price, they offer a higher dividend yield for the same payout.
The changes at affiliates are also significant. Applying the middle scenario of 90 trillion won in cash dividends from Samsung Electronics, estimated dividend yields would be 5.9 percent for Samsung Life Insurance, 5.1 percent for Samsung Fire, 3.6 percent for Samsung C&T and 5.6 percent for KCC. If Samsung Electronics' cash dividend is pushed up to 110 trillion won, the yields would rise to 7.8 percent for Samsung Life Insurance, 5.2 percent for Samsung C&T and as high as 11.1 percent for KCC.
Across all three scenarios, the overall Kospi common share dividend yield would rise from the currently expected 1.7 percent to a range of 2.08 to 2.79 percent.
These effects, however, will not materialize all at once. Dividends paid by Samsung Electronics will first flow into the dividend pools of Samsung Life Insurance, Samsung Fire and Samsung C&T — which hold direct stakes — before being redistributed through each company's year-end and subsequent dividend payments.
For KCC, which must pass through one additional layer via Samsung C&T, the actual benefits may take longer to materialize. Hyundai Motor Securities also noted that the dividend yields presented in its analysis are not figures that will all be realized within a single fiscal year, but rather projections assuming the dividend expansion effects will be reflected sequentially.
"Samsung Electronics' dividend expansion will be directly reflected at Samsung Life Insurance, Samsung Fire and Samsung C&T, and will then flow through to KCC via Samsung C&T," said Kim Jung-won, a researcher at Hyundai Motor Securities. He estimated that if Samsung Electronics' cash dividend reaches 110 trillion won, total Kospi dividends — incorporating the dividend increases at Samsung Electronics and its affiliates — would rise to 155.73 trillion won.
th5@heraldcorp.com
