Dividend
Overview
Dividend (配當, Dividend) refers to a company distributing part of the profits it earned over a given period to shareholders in the form of cash or stock. It is a representative direct source of return that shareholders gain by holding an equity stake in a company, and the size and sustainability of dividends are used as key indicators for judging a company's financial soundness and shareholder return policy. Because dividends return earned profits to the outside rather than retaining them, they carry particular significance for investors who value stable cash flow over growth investment.
Key Details
Legal Basis and Decision Structure of Dividends
Dividends are implemented based on the Commercial Act, the company laws of each country, and the articles of incorporation. Generally, the board of directors resolves on a dividend proposal, which is finalized after approval by the shareholders' meeting, and payment is made to shareholders listed on the shareholder registry as of the designated record date after the fiscal year's settlement. Companies determine dividends based on retained earnings, that is, the resources remaining after taxes and legal reserves are deducted from net income. Therefore, a company posting a loss cannot in principle pay dividends, and even a profitable company may reduce or retain dividends in order to secure funds for future investment.
Types of Dividends
- Cash dividend: The most common form, paying a fixed amount per share in cash. It is expressed as dividend per share (DPS).
- Stock dividend: A method of distributing new shares instead of cash, allowing profits to be returned to shareholders without cash outflow. However, the number of shares increases, which can dilute per-share value.
- Interim and quarterly dividends: A method of paying out at specific points during the year in addition to the year-end settlement dividend. Quarterly dividends are common among U.S. companies, and in Korea as well, the number of companies adopting quarterly dividends is growing.
- Special dividend: A dividend paid separately from regular dividends when a one-off gain, such as from the sale of assets, occurs.
- Stock and in-kind dividends: Variant forms paid in treasury shares or held assets also exist.
Dividend Payment Procedure and Ex-Dividend Date
Several reference dates are intertwined with dividends. The record date is the date on which a person listed in the shareholder registry can receive the dividend, and the ex-dividend date is the date from which a new buyer loses the right to receive that dividend. Korean corporations with a December fiscal year end traditionally used December 31 as the record date, which made the so-called "buying just before the ex-dividend date" strategy — buying just before year-end and selling at the start of the year — widespread. In theory, the stock price falls on the ex-dividend date by the amount of the scheduled dividend payment, and in practice an ex-dividend drop does occur. Dividends are usually paid around March–April of the following year, two to three months after the fiscal year end.
Key Dividend-Related Metrics
- Dividend per share (DPS): The amount of dividend paid per share.
- Dividend yield: The ratio of dividend per share to the stock price; when the stock price falls, the dividend yield rises.
- Payout ratio: The proportion of net income paid out as dividends; a level of 30–50% is generally considered sound.
- Dividend coverage: An indicator of how many times over earnings can cover the dividend; the lower it is, the greater the risk of a dividend cut.
- Dividend rate on market price: The dividend divided by the stock price, used similarly to dividend yield.
Dividend Investment Strategies
Dividend investors are broadly divided into three groups. First, high-dividend stock investing is a strategy of investing in companies with high dividend yields to secure regular cash flow. Second, dividend growth stock investing focuses on companies that have increased their dividends every year rather than on the dividend yield itself. Third, the dividend reinvestment (DRIP) strategy aims for a compounding effect by using received dividends to buy more of the same stock. In addition, covered-call ETFs that combine option premiums with dividends as a funding source, and monthly-dividend products that pay dividends every month, are gaining popularity among individual investors.
Korea's Dividend System and Taxation
Korea applies a withholding tax rate of 15.4% (including local income tax) to dividend income, and if financial income exceeds 20 million won per year, it becomes subject to comprehensive financial income taxation with progressive rates applied. This tax structure works to the disadvantage of high-dividend investing and has been cited as one of the causes of the so-called "Korea discount," in which capital gains are preferred over dividends. Accordingly, discussions on introducing separate taxation of dividend income gained momentum from 2024.
Latest Trends
The Corporate Value-up Program announced by the government in February 2024 became a watershed for institutional changes surrounding dividend policy. The government pushed for tax benefits for companies that increase dividends and for measures to improve the dividend process. In particular, institutional improvements were discussed to separate the record date from the date the dividend amount is finalized, so that shareholders can decide whether to invest after confirming the size of the dividend.
In 2024–2025, the number of companies adopting quarterly dividends grew rapidly, and more companies made treasury share cancellation a core means of shareholder return. Financial holding companies, along with large-cap stocks such as Samsung Electronics and Hyundai Motor, are actively combining quarterly dividends with share buybacks and cancellations. In the United States, money continued to flow into dividend and covered-call ETFs such as SCHD, JEPI, and JEPQ, and in Korea too, monthly-dividend ETF product lines such as TIGER and KBSTAR grew rapidly. Meanwhile, the bill on separate taxation of dividend income stalled amid differences between the ruling and opposition parties during National Assembly deliberations, and in 2025 debate continues over a separate taxation threshold of up to 20–30 million won. As the global interest rate trend shifted toward a cutting phase, the trend of dividend stocks and REITs (리츠) standing out for their relative appeal compared with deposits and bonds also became pronounced.
Related Topics
- [[Stock]]
- [[Shareholder Return Policy]]
- [[Dividend Yield]]
- [[Corporate Value-up Program]]
- [[ETF]]
- [[REITs]]