Total Special Dividends of 10.7 Trillion Won... Far Exceeding Securities Market Expectations
[Asia Economy Reporter Jeong Hyunjin] Samsung Electronics' decision on the 28th to pay a 'record-breaking' dividend far exceeding expectations is interpreted as a strong commitment to actively expanding its shareholder return policy through dividends. Although the ratio of free cash flow (FCF) returned to shareholders remains unchanged, the company has signaled that it will frequently use dividends going forward by increasing the regular dividend amount and disclosing residual funds.
During the conference call, Samsung Electronics referred to this special dividend as a "future-oriented special dividend," explaining, "Considering the current stock market situation, uncertainties related to COVID-19, and the unclear outlook for future business conditions, we judged that dividends are the most efficient way to return value to shareholders." While the securities industry initially expected the special dividend to be around 1,000 KRW per share, Samsung announced 1,578 KRW per share. Accordingly, the total special dividend amount reached 10.7 trillion KRW, far surpassing the securities industry's estimate of 7 to 8 trillion KRW. Although shareholder returns can also be made through share buybacks, Samsung decided to expand dividends, which it deemed more efficient based on past experience.
In fact, Samsung Electronics rapidly increased its dividend payout ratio from 14.1% in 2017 to 21.9% in 2018 and 44.7% in 2019. This reflects the establishment of a dividend expansion policy since the shareholder return policy was announced in 2017. The total dividend amount also grew significantly from about 5.8 trillion KRW in 2017 to 9.6 trillion KRW.
Samsung plans to increase the annual regular dividend from 9.6 trillion KRW to 9.8 trillion KRW and actively utilize residual funds for dividends. Until now, early return of residual funds was difficult due to uncertainties in the business environment such as COVID-19, but going forward, the company will disclose residual funds and actively consider early returns of some of these funds.
Industry attention was also focused on whether Samsung would raise the shareholder return scale, which is 50% of FCF, but Samsung maintained the ratio and instead increased the total regular dividend by 200 billion KRW. Although the ratio remains unchanged, with an expected semiconductor super cycle over the next 2 to 3 years, Samsung’s operating profit is anticipated to increase significantly, leading to a natural rise in FCF and consequently dividends, according to industry analysis.
In response to a question about whether maintaining the ratio would increase cash holdings, Choi Yoon-ho, President of Samsung Electronics’ Management Support Office, said, "Continuous cash increases can indeed be a burden for company management," adding, "As explained, over the next three years, we plan to expand strategic facility investments and there is a possibility of meaningful mergers and acquisitions (M&A). We will strive to reduce the risk of cash accumulation."
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