"Look at Me" The Cry of Dividend Stocks

Despite High Dividend Appeal of Financial Stocks, Investor Sentiment Weakens and Stock Prices Struggle

[Asia Economy Reporter Minji Lee] Although stock market volatility is increasing in a low-interest-rate environment, the stock prices of high-dividend companies are struggling to gain momentum. This is attributed to the sluggishness of the financial sector, a representative high-dividend industry, and the shrinking investor sentiment due to the impact of the novel coronavirus infection (Wuhan pneumonia).

According to financial information provider FnGuide on the 7th, among companies that have announced dividends so far, 16 companies are expected to have a dividend yield of 5% or higher. The company offering the highest dividend yield is Korea Investors Service, listed on the KOSDAQ market, with a dividend yield of 14.73%. Others are expected to record yields such as U.I.L. (7.71%), Orange Life (7.46%), and Pureun Savings Bank (7.02%). Additionally, SeAH Special Steel (6.69%), Jinyang Holdings (6.51%), Hyundai Motor Securities (5.97%), and Hana Financial Group (5.69%) also showed high dividend yields.

This year, companies are expected to be more proactive in dividends than last year. The Korea Corporate Governance Service forecasted that the average dividend yield of major listed companies on the KOSPI and KOSDAQ markets will exceed last year's 2.24%.

Dividend stocks can provide stable profits when stock market volatility increases in a low-interest-rate environment. For example, if an investor buys stocks of companies maintaining a 5% dividend yield at a low price during a stock price decline, they can gain both dividend income and capital gains.

However, despite the high dividend appeal, the stock price movements of high-dividend stocks have been lackluster. While it is common for stock prices to drop by the amount of the dividend after the ex-dividend date, there are opinions that the recent price declines have been excessive. The KOSPI High Dividend 50 Index, calculated by the Korea Exchange, has fallen about 7% this year. This index consists of 50 stocks with high dividend yields listed on the KOSPI market. Additionally, the KOSPI Dividend Growth 50 Index, which expects both capital gains and dividend income, has also dropped about 6% this year.

The increased stock market volatility due to concerns about the novel coronavirus infection has lowered investor sentiment, and money has concentrated only in some IT sectors.

The sluggishness of the financial sector is also cited as a reason for the deteriorated investor sentiment toward dividend stocks. Over the past month, bank-related stocks have fallen about 8%. Jungwook Choi, a researcher at Hana Financial Investment, explained, "The decline was exacerbated by the consecutive incidents involving derivative-linked funds (DLF) and Lime Asset Private Equity Funds," adding, "After the real estate measures announced at the end of last year, foreign investors' buying of bank stocks has also slowed."

Experts view this as an opportune time to purchase dividend stocks since they have fallen to low points. They expect that losses exceeding dividend yields are unlikely given the significant price drops. The increasing number of companies paying interim and quarterly dividends is also a positive factor.

Hyunji Park, a researcher at Yuanta Securities, said, "Even in the U.S. market, representative high-dividend stocks like Walt Disney and IBM have seen some price declines amid concerns about the novel coronavirus and individual corporate earnings announcements," adding, "Companies are increasing both the amount and frequency of dividends every year, so investment attractiveness toward companies with higher dividend appeal is expected to grow in the future."