"Consecutive Dividend Cuts"... Will S-Oil Lose Its High Dividend Stock Title?

[Asia Economy Reporter Ko Hyung-kwang] S-Oil, which was popular among investors as a representative high-dividend stock, is expected to face difficulties in paying year-end dividends after giving up interim dividends this year. This is due to significant deterioration in performance caused by inventory asset valuation losses of crude oil and decreased crude oil demand due to the novel coronavirus disease (COVID-19). Among investors, concerns are emerging that the appeal of high-dividend stocks may be diminishing.

According to the Financial Supervisory Service's electronic disclosure system on the 7th, S-Oil did not announce the closure of the shareholder registry last month. Typically, S-Oil sets the end of June as the record date for the shareholder registry and has paid interim dividends in July to August. This effectively means the company has decided to forgo interim dividends, a 'dividend cut.'

Until 2017, S-Oil maintained a high dividend payout ratio of around 50%, earning a reputation as a 'flagship dividend stock' among investors. In 2016, the dividend payout ratio even reached 60%. However, due to deteriorating performance over the past two years, the payout ratio has plummeted to the 30% range. The year-end dividend in 2017 was 4,700 KRW per common share, but in 2018 it shrank by 97% to 150 KRW. Both interim and year-end dividends in 2019 were only 100 KRW per common share, damaging the reputation of the high-dividend stock.

S-Oil's decision to forgo interim dividends this year is due to a large-scale deficit. In the first quarter, S-Oil recorded an operating loss of 1.0073 trillion KRW, marking the worst quarterly performance. The problem is that operating losses are expected to continue into the second quarter. According to financial information firm FnGuide, S-Oil is estimated to incur an operating loss of about 78 billion KRW in the second quarter. Although inventory valuation losses have significantly decreased due to the rebound in oil prices, refining margins remain sluggish because crude oil demand has not easily recovered amid the ongoing COVID-19 pandemic.

As a result, the recent stock price trend has also been sluggish. S-Oil's closing price yesterday was 64,000 KRW, down 16.6% from 76,800 KRW a month ago. During this period, foreign and institutional investors net sold S-Oil shares worth 32.1 billion KRW and 158.1 billion KRW, respectively.

In the securities industry, it is predicted that S-Oil's dividend payout ratio will not easily return to around 50% as in previous years in the short term. Wooje Jeon, a researcher at Heungkuk Securities, said, "Unless there is a meaningful turnaround in performance, it will be difficult to pay dividends," adding, "Because the first-quarter performance was so poor, it is expected that turning a profit on an annual basis will be difficult, so the year-end dividend this year may be around 100 KRW per common share or may not be paid at all."