Buybacks? Dividends? A Win-Win Solution to Revive Both Shareholders and Companies

[Anchor]

Terms like treasury stock purchases and cancellations, which became the center of today's (the 28th) news, may sound unfamiliar to some. Such practices have been rare in our stock market, which has been cited as a cause for the undervaluation of the Korean stock market. Expectations are rising that if shareholder returns become more active starting today, it could create a virtuous cycle where corporate value increases and profits return to shareholders.

Reporting follows by Lee Seong-hoon.

[Reporter]

Minority shareholders welcomed SK Hynix's unprecedented decision on shareholder returns.

[Goo Hyun / Gangseo-gu, Seoul: Since my shares are stuck at a high price, it is only natural that news like this is welcoming.]

[Kim Jun Han / Wonju, Gangwon Province: I think it is necessary to return more actively to shareholders, even for stock price defense.]

There are largely two types of "shareholder returns," where companies return the money they earned to shareholders: paying cash dividends directly, and buying back and retiring treasury stock.

When treasury stock is cancelled, the number of shares decreases, so even if a company's profits remain the same, the profit per share increases.

However, domestic companies have been passive about such shareholder returns.

Last year, South Korea's total shareholder return rate was 39%.

This means that if a company earned a net profit of 10, it returned about 4 to shareholders.

The United States returned more than 7, and Japan returned more than 6, showing higher shareholder return rates than South Korea.

As a result of the Korea Capital Market Institute analyzing stock markets in 45 countries worldwide, the influence of shareholder return policies was the highest at 37% among variables that dictate stock prices.

However, due to the characteristics of industries requiring large-scale investments such as electronics and automobiles, a practice of hoarding earned cash has persisted among Korean companies.

On the other hand, there were quite a few cases where the accumulated cash was utilized to strengthen the governance structure of controlling shareholders rather than for the interests of shareholders.

[Bin Ki-bum, Professor, Department of Business and Economics, Myongji University: If excess cash is just left as cash holdings, it is an asset that generates no profit. Not only does it generate no profit, but management also has ample room to use it in ways that pursue private interests regardless of shareholders' understanding, which can damage corporate value.]

If this occasion shifts the center of gravity toward shareholders, investor trust will increase, leading to long-term investment, and stock prices are also expected to receive valuations matching corporate value.

Points are also raised that the government should prepare systems to support companies in making more shareholder returns.

(Video editing: Kim Jin-won, VJ: Jeong Han-wook, Design: Lee Ga-jin)
※ Please note: This article was translated by AI and may contain errors.