Separate Taxation of Dividend Income in the Spotlight... Find the Beneficiary Stocks

Discussions Gain Momentum as Presidential Candidates Seek Voter Support
Among Companies With a Dividend Payout Ratio of 25% or Higher Over the Past 3 Years,
Focus on Those With Consistently Increasing Dividends Per Share

As discussions on the separate taxation of dividend income gain momentum due to presidential candidates' pledges, attention is focusing on stocks expected to benefit from the policy. Experts recommend paying attention to companies that have not only maintained a high dividend payout ratio but have also consistently increased their dividend payments over the past three years.

According to the financial investment industry on May 21, the securities market has recently seen a surge in analyses of beneficiary stocks in preparation for the possible implementation of separate taxation on dividend income. Shin Yooncheol, a researcher at Kiwoom Securities, stated, "If separate taxation on dividend income is promoted following the early presidential election, investment demand for high-dividend stocks, whose prices have recently declined significantly, could increase." He identified Kia as a likely beneficiary, noting that among the automobile sector, which has seen sluggish stock performance, Kia has the highest expected dividend yield. Kia, which surpassed KRW 100 trillion in annual sales for the first time in its history last year, plans to increase its total shareholder return (TSR) to 35% this year.

Until now, individual investors have had little incentive to invest in individual high-dividend stocks. Currently, if annual financial income (dividends plus interest) is KRW 20 million or less, a 15.4% tax is imposed. However, if it exceeds KRW 20 million, it is combined with earned income and subject to comprehensive taxation at a rate of up to 49.5%. Investors must also endure stock price declines due to ex-dividend dates. For example, in the case of Hyundai Motor, although the current expected dividend yield exceeds 6%, the stock price is similar to the 2010s when the dividend yield was below 3%.

However, a shift in sentiment is being detected as both Lee Jaemyung, the Democratic Party candidate, and Kim Moonsu, the People Power Party candidate, who are running in the 6·3 presidential election, are expressing strong intentions to boost the stock market and appeal to retail investors. Candidate Kim announced a plan to exempt up to KRW 50 million of dividend income from taxation and to impose a 20% separate tax on income exceeding that amount. Candidate Lee, while taking a cautious stance, also stated that lowering the dividend income tax could, in aggregate, be more beneficial for tax revenue.

In fact, the number of comprehensive income tax filers has been steadily increasing. In particular, the higher the income, the greater the proportion of dividend income. In 2023, the number of individuals who reported financial income exceeding KRW 20 million among comprehensive income tax filers was 340,000, more than double the number in 2019. While dividend income accounts for 29% of total income among all filers, the proportion rises to 64% for those with financial income exceeding KRW 500 million.

Jung Heehyun, head of ETF Management at Mirae Asset Global Investments, commented, "Currently, domestic investors' demand for dividends is much higher than in the past, and overall market interest has also increased." He added, "Policy trends, such as the recently proposed Democratic Party bill to modernize dividend practices, are likely to gain more traction." Previously, Democratic Party lawmaker Lee Soyoung proposed an amendment to the Income Tax Act that would allow listed companies with a dividend payout ratio of 35% or higher to have their dividend income taxed separately at a maximum rate of 25%, rather than being combined with comprehensive income.

As of the 2024 fiscal year, 322 companies (170 in the KOSPI market and 152 in the KOSDAQ market) have a dividend payout ratio of 35% or higher. Jung Dasom, a researcher at Korea Investment & Securities, noted, "If this proposal for separate taxation of dividend income passes, these companies can expect to reduce their dividend income tax burden." She emphasized the need to focus on companies that have maintained a dividend payout ratio of at least 25% over the past three years and have either maintained or increased their dividend per share (DPS) during that period. Companies meeting these criteria include Hyundai Elevator, Korea Shell Petroleum, K Car, Daishin Securities, and Samsung Securities. Traditional high-dividend stocks such as Samsung Card, SK Telecom, and KT&G were also mentioned.