The yield on South Korean equities, 1.2%, is the lowest of all the major economies, says The Economist. That’s part of the reason for the ‘Korea discount’, the tendency for Korean firms to trade at lower valuations than their regional and global peers.
Dividends fell by 15% in the first half of this year, even though recent earnings growth has been solid and there is ample cash in the kitty – cash worth 34% of GDP, in fact.
Companies are stockpiling it, because they are rattled by Chinese competition and slowing domestic demand as the population ages.
Now things are looking up for income-seekers. Finance minister Choi Kyung-hwan is trying to persuade firms to spend more of their cash on workers and shareholders, and thus help bolster overall growth.
He plans to impose a surcharge on corporation tax unless a firm has spent 20%-40% of income on wages and dividends. That implies a 28% annual boost to Korean dividends, reckons Daishin Securities.