As the trend of increasing dividends continues among listed companies, driven by value-up policies and movements to enhance corporate value among firms with low price-to-book ratios (PBR), concerns have emerged regarding the sustainability of these shareholder returns. Experts emphasize the need to examine cash generation capabilities and investment burdens to ensure that expanded dividends lead to lasting shareholder value.
According to the Financial Supervisory Service's electronic disclosure system, there were a total of 72 announcements regarding cash and stock dividends from listed companies between October 1 and November 11. This marks an increase of approximately 53.2% compared to 47 announcements during the same period last year.
As of the previous day, a total of 904 announcements related to corporate value enhancement plans from companies listed on the Korea Exchange, including KOSDAQ, have been recorded this year. This figure significantly exceeds the 161 announcements made throughout the entire previous year. Companies are proposing measures to enhance corporate value, including increased dividends and share buybacks.
Following the announcement of corporate value enhancement plans, several companies have begun to declare actual dividends. However, assessing the sustainability of shareholder returns based solely on the size of dividends is challenging. To maintain stable dividends, it is essential to consider not only profit levels but also cash inflows from operations and capital expenditures.
For instance, Gwangju Shinsegae submitted a corporate value enhancement plan on October 22, proposing to review an increase in the minimum dividend per share. Subsequently, it announced a quarterly cash dividend of 600 won per share. The dividend record date is set for November 30, with payments scheduled for December 17.
According to its semi-annual report, Gwangju Shinsegae reported an operating cash flow of 22.7664 billion won for the first half of the year, a 72.0% increase from 13.2355 billion won during the same period last year. Operating profit and net profit also rose by 19.9% and 22.9%, respectively, indicating improved profitability. However, the free cash flow (FCF), calculated by deducting capital expenditures from operating cash flow, shifted from a surplus of 3.82 billion won in the previous year to a deficit of 600 million won in the first half of this year, largely due to a 142.4% increase in capital expenditures from 9.4 billion won to 22.79 billion won.
Cash reserves have also decreased. As of June 30, cash and cash equivalents stood at 13.037 billion won, down 83.0% from 76.6 billion won at the end of the previous year. The dividend payout for the first half of the year was 22.882 billion won, a 36.4% increase from 16.78 billion won during the same period last year. While operating cash flow improved, the increase in investment expenditures led to a negative FCF, and with cash reserves declining, analysts suggest that the company needs to assess its capacity to balance future investments and shareholder returns.
In contrast, Innotena, which announced a quarterly dividend of 19 won per share the previous day, appears to face greater cash flow pressures. Innotena's operating cash flow for the first half of the year was a deficit of 1.448 billion won, widening from a deficit of 477 million won during the same period last year. The FCF deficit also increased from 576 million won to 1.617 billion won. Revenue fell by 8.0%, and operating profit decreased by 23.8%, indicating a decline in profitability compared to the previous year.
On the other hand, the dividend payout for the first half of the year was 676 million won, an 83.7% increase from 368 million won during the same period last year. Cash and cash equivalents decreased by 26.7%, from 3.628 billion won at the end of the previous year to 2.658 billion won as of June 30. Given the cash outflows from operations and the reduction in cash reserves, the increase in dividends raises questions about the future cash flow and changes in available cash.
Industry experts argue that when evaluating dividend increases, it is crucial to consider not only the size of the dividends but also the company's cash generation capabilities and investment expenditures. A financial investment industry representative emphasized, "For shareholder return policies to achieve sustainability rather than being one-time dividends, they must be supported by the company's profits, cash generation capabilities, and financial capacity."
* This article has been translated by AI.
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