67 Companies Invested by National Pension Service Underpay Dividends... Will They Become Targets at Shareholders' Meetings?

Minister of Health and Welfare Park Neung-hoo is delivering opening remarks at the '9th National Pension Fund Management Committee' held at the Plaza Hotel in Jung-gu, Seoul on the 27th of last month. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Koh Hyung-kwang] Among the five listed companies in which the National Pension Service (NPS) holds more than 5% of shares, one out of five either paid no dividends at all despite making a net profit or paid "insufficient dividends" amounting to less than 10% of net profit.

As the NPS has recently embarked on more active shareholder value enhancement activities, there is a view that it may increase pressure on these "meager dividend" companies ahead of this year's shareholder meetings.

According to financial information provider FnGuide on the 25th, as of the end of last year, among 313 listed companies in which the NPS holds more than 5% of shares, 67 companies (21.4%) had a dividend payout ratio of less than 10% or paid no dividends for the 2018 fiscal year.

The dividend payout ratio is a representative indicator showing how much profit a company returns to its shareholders, calculated as the ratio of dividends paid in cash to net income (net income attributable to controlling shareholders on a consolidated basis).

Notably, among these 67 companies, 26 made net profits in the 2018 fiscal year but paid no dividends at all. Among them, Celltrion (NPS shareholding ratio 8.11%) recorded a controlling shareholder net income of 261.8 billion KRW and retained earnings of 1.0718 trillion KRW for 2018 but paid zero dividends.

Doosan Infracore (shareholding ratio 6.14%) and Pan Ocean (shareholding ratio 5.81%) also reported controlling shareholder net incomes of 246.4 billion KRW and 152.4 billion KRW respectively, yet paid no dividends.

Additionally, 41 companies had dividend payout ratios less than 10%, which is less than half the average for domestic listed companies. SK Hynix (shareholding ratio 10.24%) paid dividends amounting to 6.6% of its controlling shareholder net income of 15.5401 trillion KRW, totaling 1.026 trillion KRW, while Hyosung (shareholding ratio 10.00%) had a dividend payout ratio of only 3.03% on a controlling shareholder net income of 3.3578 trillion KRW.

In the case of HDC (shareholding ratio 10.87%), dividends amounted to 8.6 billion KRW on a controlling shareholder net income of 917.1 billion KRW, resulting in a dividend payout ratio of 0.94%. According to FnGuide, the average dividend payout ratio in 2018 was 23.68% for the KOSPI market and 37.04% for the KOSDAQ market.

Earlier, the NPS decided to strengthen management by selecting companies with low dividend payout ratios, lacking reasonable dividend policies, or not adhering to such policies as key management issues in its active shareholder engagement guidelines adopted at the end of last year.

The NPS plans to engage in active shareholder activities such as shareholder proposals for companies that show no improvement after going through stages including private dialogue target companies, private key management companies, and public key management companies, or those that refuse dialogue altogether and are deemed unlikely to improve.

This is why the NPS is expected to further intensify activities aimed at enhancing shareholder value targeting "meager dividend" listed companies during this year's shareholder meeting season.

Choi Yong-hwan, Senior Researcher at Sustainvest, a responsible investment consulting firm, explained, "Even when the NPS's investment ratio does not exceed 5%, companies in which the NPS has invested show a dividend payout ratio 20% higher than excluded companies," adding, "This means that the influence of the NPS's shareholding on the dividend payout ratio of listed companies has significantly increased."