Samsung Electronics preferred shares have risen nearly twice as fast as the company's common stock this month, drawing investors ahead of a dividend record date that carries a large cash payout and on expectations that the relatively undervalued preferred shares could be used in future share buybacks and cancellations.
Samsung Electronics preferred shares gained 15.34% between the 1st and the 23rd of this month, according to the Korea Exchange. The common stock rose 9.00% over the same period, leaving the preferred shares ahead by 6.34 percentage points. On the 23rd, the preferred shares closed 4.02% higher at 219,500 won, while the common stock ended up 3.25% at 284,500 won.
Over a longer stretch, the outperformance is even clearer. From June 22 through the 23rd, Samsung Electronics common stock fell 19.52%, while the preferred shares declined just 2.01%. Among the 10 largest components by market value in the KOSPI preferred stock index, six preferred issues outperformed their common counterparts over the past three months.
Not all preferred shares are rallying. Among the five largest components by market value in the KOSPI preferred stock index this month, only Hyundai Motor 2nd Preferred B and Mirae Asset Securities 2nd Preferred B joined Samsung's preferred shares in outperforming, beating their common stock by 4.78 percentage points and 4.01 percentage points, respectively. Doosan Preferred and Samsung Electro-Mechanics Preferred lagged their common stock by 6.04 percentage points and 6.72 percentage points. The pattern suggests investors are differentiating in favor of issues with concrete prospects for shareholder returns such as dividends and share cancellations.
Behind the recent buying in Samsung Electronics preferred shares are expectations for large-scale shareholder returns. Samsung Electronics plans to return a total of 90 trillion to 110 trillion won to shareholders this year. About 30 trillion won of that will go toward a third-quarter cash dividend, with the remaining 60 trillion to 80 trillion won earmarked for cash dividends and share buybacks and cancellations. Specific plans for the remaining funds will be decided at a board meeting in January.
Because preferred shares trade at a lower price than the common stock, an identical per-share dividend translates into a higher yield. Samsung Electronics set its third-quarter dividend record date for the 30th of this month, and the specific allocation between common and preferred shares, along with the per-share dividend, will be finalized at a board meeting next month. Brokerages estimate the per-share dividend at 4,500 to 4,654 won, assuming the same amount is paid on both classes of shares.
The possibility that preferred shares will be used in future share cancellations is another factor supporting the price. Life Asset Management recently sent a shareholder letter to Samsung Electronics' board and management proposing that remaining shareholder-return funds be directed first toward buying and canceling preferred shares.
"In Samsung Electronics' case, the market's assessment of the shareholder return policy announced last month was rather cool, so we expect a more active review of share buybacks and cancellations," said Ryu Hyung-geun, an analyst at Daishin Securities. "Expectations for continuous rather than one-off shareholder returns can lead to higher corporate value."
