Shareholder returns have emerged as a central theme in South Korea's stock market after the country made cancellation of treasury shares mandatory and introduced separate taxation on dividend income from high-payout companies. The way companies return capital is shifting quickly as well: last year, the value of treasury shares canceled by listed Korean firms exceeded the value of shares repurchased for the first time. In Japan, however, which strengthened shareholder returns earlier than Korea, long-term share performance diverged sharply depending on whether earnings growth backed those payouts rather than on the size of the returns themselves, suggesting that competitiveness in a company's core business determines whether value-up efforts have real effect.
Cash dividends declared by listed Korean companies in the first half of this year totaled 43.2 trillion won, or about 85% of last year's full-year figure of 50.9 trillion won, according to the Korea Exchange on the 26th. Treasury share cancellations reached 21.4 trillion won last year, more than quadrupling in two years and surpassing repurchases of 20.1 trillion won for the first time. Under the revised Commercial Act that took effect in March, newly acquired treasury shares must in principle be canceled within one year. Shares held before the revision are subject to an 18-month grace period and must be canceled by September next year, which is expected to make the trend toward returns more pronounced.
Shareholder returns are a major driver of corporate re-rating, but the key variable determining how long the effect lasts is growth in the core business. Japan's stock market, where shareholder-friendly policies took hold early, offers the clearest example. NTT, the country's largest telecommunications company, has steadily bought back shares and raised its dividend for 16 consecutive years, but the growth limits of the telecom business made it difficult to offset slowing expansion. Even after deciding in May on an additional 200 billion yen in share repurchases, the stock has risen about 7.5% this year, far below the 20.6% gain in the Topix.
Companies and sectors where earnings growth and shareholder returns moved together, by contrast, drew strong re-rating. Japan's major banks began stepping up buybacks and dividends in earnest in 2022 as earnings recovered. Mitsubishi UFJ Financial Group and Sumitomo Mitsui Banking announced large-scale repurchases at the time, and Mizuho Bank raised its dividend outlook, strengthening the payout trend across the financial stocks known as "megabanks." Combined with the subsequent normalization of interest rates, the Topix banking index has risen roughly fivefold since the start of 2022, far outpacing the broader market.
In Korea as well, aggressive shareholder return programs announced when earnings outlooks were deteriorating proved to have limits in driving a re-rating. POSCO Holdings (005490) announced a three-year treasury share cancellation plan in 2024 and completed it this year, but the stock continued to decline amid a slump in the steel industry. Hyundai Motor (005380) also unveiled aggressive measures that year, including an expanded total shareholder return, or TSR, yet failed to achieve a re-rating. Kakao (035720) is the latest test case. The company presented a detailed shareholder return roadmap alongside a governance overhaul, but the market response has been cool so far, as concerns mount over how expanded investment in new businesses including artificial intelligence will affect future profitability.
SK Securities (001510) assessed capacity for shareholder returns and earnings momentum by sector among listed Korean companies. Telecommunications services showed a dividend payout ratio of 46.4% and scored 76 points on return capacity, but only 31 points on earnings momentum. Autos likewise scored 57 points on return capacity with a payout ratio of 27.8%, against just 35 points on earnings momentum. Semiconductors, by contrast, had a payout ratio of only 15.5% but scored 100 points on earnings momentum, the highest of any sector. Securities and insurance also ranked near the top, at 81 and 77 points respectively.
The key to differentiation in share prices is not the current level of dividends but whether companies can sustain and expand returns on the back of rising earnings, analysts said. "Shareholder return programs can have a lasting effect on share prices when a company's earnings power supports them," an official in the financial investment industry said. "But when optimistic market expectations have already been priced in and valuations have risen sharply over a short period, room for further re-rating can be limited."
