Companies Prioritizing Minority Shareholders with Differential Dividends Draw Attention

Despite Poor Performance Last Year
Doosan and SeAH Besteel Issue First Differential Dividends

[Asia Economy Reporter Minji Lee] Attention is focused on whether more companies will adopt differential dividends so that minority shareholders can receive more dividends than major shareholders.

According to financial information provider FnGuide on the 22nd, among listed companies with December fiscal year-end that disclosed dividend settlements by the 19th, 13 companies including Doosan, SeAH Besteel, Orion Holdings, and Kyobo Securities have adopted differential dividends. Differential dividends mean that, as a favor from major shareholders, the dividend rate for minority shareholders is relatively increased or no dividends are decided for major shareholders. Along with interim dividends and treasury stock cancellations, it is considered a representative shareholder return policy.

Recently, the number of companies adopting differential dividends based on the fiscal year has shown an increasing trend: 21 companies in 2016, 28 in 2017, 28 in 2018, and 27 in 2019. Although the performance decline of listed companies became clear due to the spread of COVID-19 last year, the number of companies disclosing differential dividends is similar to last year (13 companies) when compared at the same point in time. In some listed companies, differential dividends were decided to maintain shareholder returns and dividend payments despite recording losses or a significant decrease in net profit.

Doosan and its subsidiaries SeAH Besteel and SeAH Special Steel, part of SeAH Holdings, decided on differential dividends for the first time ever last year despite poor performance. Doosan recorded a net loss of 900 million KRW last year due to a decrease in subsidiary performance, turning to a deficit, but significantly increased the dividend amount. While maintaining a market dividend yield of about 1.8% over the past 10 years, this year it decided on no dividends for major shareholders and a differential dividend of 2,000 KRW for general shareholders, increasing the market dividend yield to 3.7%.

Despite a significant decline in performance due to worsening business conditions, SeAH Besteel decided to pay 200 KRW only to general shareholders, and SeAH Special Steel decided to pay 700 KRW to general shareholders and 500 KRW to major shareholders. A SeAH Holdings official explained, "Due to the prolonged COVID-19 pandemic and weakening steel demand, performance has significantly decreased, so differential dividends were decided to preserve dividends payable to general shareholders," adding, "This is for individual shareholders who have shown trust despite the sluggish business conditions."

There were also companies that adopted differential dividends due to record-high performance. Kyobo Securities disclosed differential dividends of 300 KRW for major shareholders and 450 KRW for general shareholders for the first time since 2004, which is interpreted as a result of their record performance. Kyobo Securities recorded operating profit of 103.5 billion KRW, a 24% increase compared to the previous year, due to a significant increase in IB (investment banking) and brokerage revenue. Net profit exceeded 100 billion KRW annually for the first time in history.

Following last year, five companies including Orion Holdings, Ace Bed, Daehan Pharmaceutical, Jeongsang JLS, and Iljin Power have announced differential dividends this year as well. Education company Jeongsang JLS has implemented differential dividends since 2013, fixing dividends at 300 KRW for major shareholders and related parties (40.76% stake) for eight years. This year, differential dividends of 430 KRW for general shareholders and 300 KRW for major shareholders are expected to be paid. Nuclear power company Iljin Power has implemented differential dividends since 2008, and this year decided on dividends of 300 KRW for general shareholders and 270 KRW for major shareholders (38.4%).