[Dividend Investing in an Era of Uncertainty①] 'Building My Own Monthly Dividend Portfolio' MZ Generation Investment Trend Takes Off... "Make Sure to Grab Your Bonus"

Editor's NoteAs the global financial market environment deteriorates and uncertainty over capital gains increases, demand from investors seeking stable income has risen, bringing dividend investing into the spotlight. With the increase in dividend exchange-traded products (ETPs), investment opportunities are expanding, and the market size is expected to grow steadily. Growing interest from general investors in shareholder returns is also driving companies to increase their dividend payouts, further fueling market expansion.

[Asia Economy Reporter Lee Seon-ae] #Kim Sawol (28) these days feels pleased whenever she checks her stock account. Despite her senior colleague’s sighs about the market downturn filled with ‘red lights,’ Kim feels like she is receiving a bonus from the steadily accumulating dividends. Reducing stock weight and building a dividend-focused portfolio paid off. Recently, she also received monthly dividends from a domestic listed ETF for the first time. Thanks to investing in ‘SOL US S&P500,’ launched by Shinhan Asset Management as the first monthly dividend ETF in Korea when it was listed in June, she received about 100,000 KRW on the 1st.

#Park Jihwan (52), a self-proclaimed Seohak Gaemi (Korean investors investing in overseas stocks) who had only invested in U.S. dividend stocks, has recently increased his domestic dividend investments as well. This is due to the expansion of investment opportunities with the emergence of various products. He said, "As voices for shareholder returns grow louder, dividends from domestic listed companies are also increasing, creating more opportunities for dividend stock investments," adding, "I think dividend investing will gain more attention as the domestic capital market matures."

◆‘Monthly Dividend ETFs’ Led by the MZ Generation... A Flood of New Product Launches

The era of dividends is truly arriving. Monthly dividend ETFs are already active in the U.S. stock market and have become a major investment target for Seohak Gaemi, but the domestic market is just forming with related products emerging one after another, starting with the listing of Shinhan Asset Management’s ‘SOL US S&P500’ on June 21. Monthly dividend ETFs collect interest and dividends from underlying assets such as stocks and bonds and distribute dividends on a monthly basis. Dividends from ETFs can be interpreted similarly to stock dividends.

Shinhan Asset Management focused on the investment trends of the MZ generation (Millennials + Generation Z) and introduced monthly dividend ETFs. A Shinhan Asset Management official said on the 1st, "We noticed the investment trend among the MZ generation to build personalized monthly dividend portfolios by utilizing various ETF distribution cycles," adding, "In response, we launched this product so investors can feel like they receive a salary while also gaining capital gains. Before this product, investors had to combine domestic and overseas ETFs in a complicated way to receive monthly dividends, but now they can receive monthly dividends by investing in domestic products." Thanks to the popularity among individual investors, the net asset value of the ‘SOL US S&P500 ETF’ reached 29.4 billion KRW as of the closing price on the 31st.

Mirae Asset Global Investments joined the market expansion by changing four ETFs that paid dividends quarterly to monthly distributions. These include ‘TIGER US Dow Jones 30 ETF,’ ‘TIGER US MSCI REITs (Synthetic H) ETF,’ ‘TIGER 200 Covered Call 5% OTM ETF,’ and ‘TIGER 200 Covered Call ATM ETF.’ Previously, dividends were paid on the last business day of January, April, July, and October, and at the end of the ETF accounting period, but after the change, dividends are paid on the last business day of every month. A Mirae Asset Global Investments official said, "Due to recent interest rate hikes and increased market volatility, investors are paying more attention to income gains rather than capital gains," adding, "We changed the dividend payment schedule to reflect investor demand, and since then, net purchases by individual investors have increased."

Since monthly dividend ETFs ranked second among the stocks that Seohak Gaemi received the most dividends from last year, the domestic market’s ‘monthly dividend ETFs’ are expected to attract investors once they establish themselves. In fact, many believe that monthly dividend ETFs will become a kind of investment style in the domestic market. A financial investment industry official said, "Considering the stability of capital gains, which is a core element of monthly dividend ETF products, and the sustainability of dividends from underlying assets, new monthly dividend ETFs tailored to investor demand from the MZ generation to retirees will continue to be launched," adding, "Initially, monthly dividend products investing in market-leading indices and REITs with high dividend payout ratios will increase."

Shinhan Asset Management is positively reviewing additional monthly dividend ETFs. Mirae Asset Global Investments plans to list a ‘Nasdaq 100 Covered Call ETF’ on the domestic market in the fourth quarter.

Currently, there are only five monthly dividend ETFs in Korea, but the number is expected to increase like in overseas markets. In the U.S., 632 monthly dividend ETFs are listed. Kim Hae-in, a researcher at Daishin Securities, said, "Domestic monthly dividend products have continuously attracted net inflows since their launch and are growing in size," adding, "There is great anticipation for new monthly dividend ETFs to be launched in the future."

◆The Heyday of Dividend Stock Funds... Focus on ‘High Dividend Stocks’

More investors are turning back to dividend stock funds. Although they were overlooked compared to growth stock funds that led the bull market, stable dividend stock funds are regaining investor interest this year. According to fund rating agency FnGuide, about 515 billion KRW has been newly invested in 266 domestic dividend stock funds this year. The ‘Baring High Dividend Fund,’ a long-standing fund celebrating its 20th anniversary this year and Korea’s first dividend stock fund, has attracted over 51 billion KRW in new funds this year. It has maintained a return of over 550% since its inception.

Various dividend stock fund products are also pouring out. KB Asset Management recently launched the ‘KB US ESG Dividend Aristocrats Fund.’ It is an index fund tracking the ‘S&P US ESG Dividend Aristocrats Index,’ a representative U.S. dividend growth index. The difference from previously launched U.S. Dividend Aristocrats funds is the use of ESG scores for stock selection. The tracked index, the ‘US ESG Dividend Aristocrats Index,’ first selects about 120 stocks that have increased dividends for over 20 consecutive years from the S&P 1500 index, which covers about 90% of the U.S. stock market.

Kim Hong-gon, head of the Index Quantitative Division at KB Asset Management, explained, "Dividend growth and ESG (Environmental, Social, Governance) strategies share commonalities in terms of sustainability, and combining ESG with dividend growth provides a defense against interest rate hikes and limits downside during market shocks like pandemics," adding, "The KB US ESG Dividend Aristocrats Fund, which combines high dividend yields, a balanced portfolio, and ESG, will emerge as a key investment alternative amid ongoing market volatility."

As listed companies increase their dividend payout ratios, investor interest is focusing on high dividend stocks. According to FnGuide, total dividends paid by domestic listed companies in the first half of the year reached 9.034 trillion KRW, a 20% increase from 7.512 trillion KRW in the same period last year. Although net profits decreased by 3.3% from 120.4856 trillion KRW to 116.4269 trillion KRW, the dividend payout ratio rose from 6.23% to 7.76%. The Korea Capital Market Institute evaluated that an environment where companies respond to shareholder profit return demands is taking root, and the expansion of corporate dividends is a driving force ushering in the dividend era.

The securities industry advises that high dividend stocks can be an investment alternative in a bear market. Lee Kyung-soo, a researcher at Hana Financial Investment, emphasized, "While ‘earnings’ can hedge beta (index) volatility from an alpha perspective, adding high dividends as a stronger defensive factor can create a more stable model, so a strategy combining earnings and high dividends is necessary." He pointed to stocks expected to have higher year-end dividend yields as operating profit estimates for one and three months are revised upward, including Korean Air, Youngone Corporation, Kolmar Korea, Hyundai Marine & Fire Insurance, Shinsegae, Daeduck Electronics, LX International, DB Insurance, GS, Lotte Rental, Shinsegae International, HD Hyundai, and Symtek.

Yang Hae-jung, a researcher at DS Investment & Securities, recommended a ‘Dividend + Oversold’ strategy. Applying oversold criteria to stocks with year-end dividend yields above 5%, she recommended BNK Financial Group, Industrial Bank of Korea, Shinhan Financial Group, Kumho Petrochemical, Korea Land & Housing Corporation, Korea Financial Group, Lotte Hi-Mart, HMM, LX Semicon, Woori Financial Group, JB Financial Group, Hanyang Securities, and POSCO Holdings.