Tax Reform Plan Shifts Stock Market Momentum... Companies Likely to Raise Payout Ratios in Focus

As momentum in the stock market shifts toward the tax reform plan set to be announced at the end of July, there are calls to pay attention to companies that have incentives to change their capital allocation as a result of the new plan. Samsung C&T, Woori Financial Group, and Mirae Asset Securities are cited as representative examples.

On July 9, Kim Suyeon, a researcher at Hanwha Investment & Securities, stated in the report "Active Demand Playbook: The Incentive of a 35% Payout Ratio," that "the core of the current tax reform plan under discussion is to lower the dividend income tax rate for shareholders of companies with a payout ratio exceeding 35%."

The centerpiece of this year's reform plan is the "low-rate separate taxation of dividend income." Kim explained, "Currently, if interest and dividend income exceeds 20 million won per year, it becomes subject to comprehensive financial income taxation, with the top tax rate reaching 45% for amounts over 1 billion won. The reform plan proposes to tax dividend income separately and lower the top rate to 25% for amounts over 300 million won, a reduction of 20 percentage points from the current rate. Considering local taxes, the reduction is 22 percentage points."

She emphasized, "Going forward, the focus should not be on companies that already have a payout ratio above 35% and will clearly benefit from the tax reform, but rather on those that have an incentive to change their capital allocation because of this reform plan." She added, "Holding companies with a high proportion of shares owned by major shareholders are likely candidates."

She also identified 14 KOSPI 200 companies with a payout ratio below 35% but the capacity to increase it with cash: Samsung C&T, Woori Financial Group, Mirae Asset Securities, LIG Nex1, Hyundai Glovis, DB Insurance, Korean Air, Kiwoom Securities, Orion, Samsung E&A, Cosmax, Hansol Chemical, HL Mando, and Hyundai Wia. She assessed, "Although share prices have risen significantly this year, if these companies raise their payout ratios and attract foreign investors, there is still room for further price increases."

In the case of Samsung C&T, its average payout ratio over the past three years has been 18.8%. Based on last year's net profit and cash holdings, achieving a 35% payout ratio is deemed fully feasible. In her report, Kim also noted that foreign investor inflows into Samsung Electronics have closely tracked changes in its payout ratio.

Last year, the payout ratio of KOSPI-listed companies was found to be 27.2%. Kim explained, "As talk of the tax reform plan emerged, the first stocks to react were financial holding companies such as banks and essential consumer goods companies, because their payout ratios are high and stable."