US hedge fund pressuring Daishin Securities
Known as one of the dividend kings among Korean stocks, Daishin Securities has been paying out cash dividends for the past 23 years.
Keeping with the tradition, the brokerage firm has decided to pay out 80.4 billion ($72 million) in dividends for its 2020 earnings. The firm’s board meeting decided earlier this week that the securities company will pay out 1,200 won per common stock and 1,250 per preferred stock, or about an 8.6 percent dividend rate for common stocks and a 10.9 percent rate for preferred stocks.
However, according to the firm’s recent public announcement, a shareholder proposal has been submitted to the brokerage firm to raise the dividend to 1,500 won per ordinary stock or a 10.7 percent dividend rate, and 1,550 for preferred stocks or a 13.5 percent dividend rate.
The securities firm did not disclose any details about which shareholder submitted the proposal.
“Any shareholders who hold more than a 0.1 percent stake in the firm have the right to submit a shareholder proposal. And the firm cannot give out information on the matter,” an official from Daishin Securities said.
Despite the firm’s cautious silence about the shareholder proposal, market insiders say the New York-headquartered hedge fund SC Fundamental was behind the proposed increase. They claimed the U.S. activist fund asked Daishin to increase cash dividends by 50 percent and cut firm executives’ compensation. The fund is also said to be buying back the firm’s stocks only to retire them.
When it comes to Daishin Securities’ years-long reputation as one of the few Korean companies to have been maintaining pay out of cash dividends for decades, the activist fund’s demands are considered a bit much, particularly when the firm’s payout ratio — the ratio of total dividends to net earnings — for last year is already higher than the firm’s dividend guideline.
“The company’s dividend payout ratio for last year would be 47.2 percent, and this figure exceeds the firm’s dividend payout guideline range of 30 percent to 40 percent. The company’s dividend ratio from last year is rather an exception, because it achieved solid growth in terms of net profits,” the official from Daishin Securities explained.
The securities firm reported an annual operating profit of 239.2 billion won, a 140 percent hike from the previous year. The net profit for the past year also saw a 56.4 percent increase, as it stood at 147 billion won, up from the previous year’s 94 billion won. The total amount of cash dividends will be 80.4 billion won, which is a year-on-year 17 percent increase.
Daishin Securities has also been active in raising shareholder value by buying back their shares and retiring them. The firm bought back over 6.7 million common stocks and 350,000 preferred stocks over the past two years. All in all, the firm’s shareholder return ratio over the three years is estimated to be 65.5 percent, while the average ratio of listed financial firms during the same period stood at 32 percent.
“Buying back a firm’s own stocks and retiring them does not always generate greater shareholder value, as such acts could remove an opportunity for a firm’s future capital increase,” a market insider explained.
The U.S.-based hedge fund’s “controversial” track record of submitting similar shareholder proposals with other Korean companies has also drawn scrutiny from market watchers. The activist fund submitted various shareholder proposals to other companies like GS Home Shopping and Motonic asking them to buy back stocks and increase dividends, while the firm sometimes didn’t even hold a sufficient stake to qualify for making such proposals, or sold the stakes quickly thus drawing suspicions of short-term profiteering.
The exact amount of cash dividends for the past year’s performance will be voted on during the firm’s shareholders’ meeting slated for March 19.
When it comes to Daishin Securities’ years-long reputation as one of the few Korean companies to have been maintaining pay out of cash dividends for decades, the activist fund’s demands are considered a bit much.
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