Half of Food Companies Offer Minimal Dividends... Only Four Retire Treasury Shares [K-Food G Report] ④

Still Conservative Dividend Policies:
7 Out of 20 Companies Below 20%
Treasury Stock Policies:
Very Few Companies Take Action

Editor's NoteDespite the global "K-food" boom elevating the status of Korean food companies, their corporate governance structures remain outdated. While global brand credibility continues to rise, critics point out that management systems are still rooted in past practices, with insufficient efforts to restore investor trust. In line with the enforcement of the revised Commercial Act, Asia Economy has assessed the governance structures of the top 20 listed food companies by market capitalization. Over the course of five reports, we will analyze both quantitative and qualitative data across ten categories-including dividend payout ratios, treasury stock policies, dual listings, and board composition-and discuss areas for improvement.

Domestic food companies, notorious for their "stingy dividends," still fall far short of the global average dividend payout ratio for food companies. Only a handful have retired treasury shares-a key shareholder return policy-and many have not even formalized specific shareholder return policies.

On August 12, Asia Economy conducted a quantitative and qualitative evaluation of the top 20 food and beverage companies by market capitalization, based on ten corporate governance indicators. Only six companies (KT&G, CJ CheilJedang, Lotte Chilsung, Dongwon Industries, Namyang Dairy Products, and HiteJinro) exceeded the global average dividend payout ratio for food companies.

According to statistics from NYU Stern School of Business, which surveyed 77 global listed companies including Kraft Heinz, Nestle, Danone, and General Mills, the average dividend payout ratio in the food processing industry was 49.4% as of last year.

Still Conservative Dividend Policies: 7 Out of 20 Companies Below 20%

The dividend payout ratio represents the proportion of net income paid out as dividends to shareholders, serving as an indicator of a company’s ability to pay dividends. A higher payout ratio means a greater capacity to pay dividends and a larger portion of profits returned to shareholders. For example, if a company earns KRW 100 billion in net income and pays out KRW 50 billion in dividends, the payout ratio is 50%.

According to the Financial Services Commission, the average dividend payout ratio of listed companies in Korea over the past ten years is 26%. About half (nine) of the listed food and beverage companies fell below this average, and only eight companies achieved a full score (2 points) for having a payout ratio of 30% or higher. Three companies-Samyang Foods, Sajo Daerim, and Harim-scored zero for having a payout ratio below 10%. Seven companies did not even disclose a dividend policy.

Namyang Dairy Products had the highest dividend payout ratio. The company has maintained a high payout ratio since the tenure of former chairman Hong Won-sik, who stepped down in 2021 following the Bulgaris incident. Namyang Dairy Products was acquired by private equity fund Hahn & Company early last year, and continued its high-dividend policy with a payout ratio of 356% last year.

Sajo Daerim recorded the lowest dividend payout ratio, with figures of 3.6% in 2022, 3.0% in 2023, and 2.8% in 2024 over the past three years. Not only does the company lack a dividend policy, but there are also no decision-making procedures in place prior to the record date, making it virtually impossible for investors to predict dividends. In addition, Pulmuone, Samyang Foods, Orion, Ottogi, Samyangsa, and SPC Samlip have all maintained an average dividend payout ratio below 20% over the past three years, continuing to pay conservative dividends despite their profit-generating capabilities.

Dividend volatility also undermined predictability. Harim had a payout ratio of 48.5% in 2022, which dropped to 24.4% the following year, and then to 0% last year, with no dividends paid. In contrast, HiteJinro consistently recorded double-digit payout ratios-76.4% in 2022, 186.8% in 2023, and 51.1% in 2024-while KT&G also maintained a relatively high average payout ratio of over 50% per year.

Treasury Stock Policies: Only a Select Few Take Action

Treasury stock policies were also lacking. Only four companies announced plans to enhance shareholder value by purchasing or retiring treasury shares, and three companies did not hold any treasury shares at all. Treasury stock purchases are generally interpreted as a sign that the company is committed to managing its share price, as it suggests management believes the stock is undervalued.

For treasury stock purchases to benefit investors, the shares must not only be bought but also retired. When treasury shares are retired, the number of shares in circulation decreases, boosting earnings per share (EPS: annual net income divided by total outstanding shares). As the supply of shares in the market decreases, scarcity increases, demand rises, and the share price is more likely to go up. Expectations for higher dividends per share also grow.

However, among listed food and beverage companies, only KT&G and Namyang Dairy Products have regularly or significantly purchased and actually retired treasury shares over the past three years.

Some companies have used treasury shares to strengthen the control of owner families. Lotte Chilsung, which currently holds no treasury shares, sold 420,000 treasury shares to its largest shareholder, Lotte Holdings, through a block deal (off-hours bulk transaction) in November 2020. At that time, Lotte Holdings increased its stake in Lotte Chilsung by an additional 4.7 percentage points, bringing its total ownership to 39.3% and solidifying its control.

This incident drew strong criticism from institutional investors and minority shareholder groups, as treasury shares were used as a tool for restructuring corporate governance. While retiring treasury shares would have reduced the number of shares and increased their value, Lotte Chilsung sold the shares to Lotte Holdings instead, resulting in no reduction in shares and no increase in shareholder value. In contrast, the owner family was able to strengthen its control over the affiliate without changing its stake in the holding company. This is a typical example of using treasury shares as a defense mechanism for management control, creating conflicts of interest with minority shareholders.