Considering tax reductions on stock dividends to stimulate distributions and investments in Seoul.
In a significant move aimed at bolstering the Korean economy, President Lee Jae Myung has initiated a push for reforms to the country's dividend tax system. The proposed changes, aimed at reducing dividend taxes and promoting higher dividends, could potentially attract more investors and stimulate growth within the Korean market.
Several Korean companies are poised to benefit from these reforms, with many already demonstrating strong dividend records and high payout ratios. Among these are GOLFZON (KOSDAQ: A215000), Seoul City Gas Co., Ltd. (KRX: 004460), and a group of companies identified by analysts as likely beneficiaries, including Jinyang Holdings, SeAH Be Steel Holdings, Amore Pacific Holdings, CJ, Huons Global, SK Discovery, and Orion Holdings.
GOLFZON, with a dividend yield of 5.52%, stands out for its high dividend yield within the Korean market. Seoul City Gas Co., Ltd., on the other hand, benefits from regulated pricing in essential services, providing a stable income stream, and boasts a dividend yield of 5.2%.
The proposed tax reforms aim to reduce the tax burden on dividends for companies with high payout ratios, encouraging more companies to increase their dividend payouts. Under the proposed bill, dividends up to 20 million won would be taxed at 15.4%, amounts between 20 million and 300 million won at 22%, and dividends exceeding 300 million won at 27.5%.
DS Investment & Securities analyst Kim Soo-hyun stated that separate taxation for companies with a payout ratio of 35% or higher can encourage long-term investments and stabilize the capital market. Similarly, Daishin Securities analyst Lee Kyung-yeon recommends identifying "true value stocks" with strong dividend capacity, an explicit desire to expand payouts, and potential tax advantages.
The success of these reforms depends on companies maintaining high payout ratios and demonstrating a consistent trend of dividend growth. Analysts suggest that if companies such as Kolon, Hankook & Co., and Daesang Holdings, which have payout ratios between 25 and 34 percent, push past the 35 percent threshold, they could unlock additional benefits.
The major financial groups like Woori, Hana, KB, and Shinhan, with payout ratios below 30 percent, also have room to raise dividends if the new tax policy encourages it. This could lead to increased investor confidence and higher dividend yields across the Korean market.
However, it's important to note that high dividend taxes have been a deterrent for investors, especially large shareholders, in Korea. The country's dividend payout ratio is much lower than that of the US, Japan, and China, indicating a potential for growth in this area. The proposed tax reform could potentially reduce the tax burden for smaller shareholders, as higher dividends tend to improve dividend yields and enhance investment appeal.
The reforms aim to not only reduce the tax burden but also to bolster the revitalization of Korea's capital markets, encouraging a shift from stock buybacks and cancellations to increasing dividends. This could make Korean companies more attractive to investors and contribute to the overall growth and stability of the Korean economy.
Investing in Korean companies could be a smart move for personal-finance, with businesses like GOLFZON and Seoul City Gas Co., Ltd., known for their high dividend yields, gaining more attention due to the proposed dividend tax reforms. The reforms, aimed at reducing dividend taxes and promoting growth, could encourage more businesses to increase their dividend payouts, potentially attracting more investors and strengthening the Korean economy's business sector.
