Ahead of the Presidential Election, Separate Taxation on Dividend Income 'Ignites'... Attention to Finance, Construction, Performance Improvement Stocks

Korea's Dividend Income Tax Rate, Unreasonably High Compared To Developed Countries (Source: Seoul Economy)

As the upcoming presidential election approaches, discussions on 'Separate Taxation of Dividend Income' are emerging as a key economic pledge in the political sphere, with high dividend stocks and dividend-expanding companies being noted as promising investment destinations. As major candidates hint at tax reforms, there are signs of buying interest flowing into dividend stocks, including financial and construction stocks.

According to the political community on the 25th, Kim Moon-soo, the presidential candidate of the People Power Party, stated, “We will encourage stock market revitalization by separate taxation of dividend income,” and Lee Jae-myung, the Democratic Party candidate, also expressed agreement with the intention of dividend income tax reform. If the new government excludes dividend income from comprehensive taxation and introduces a separate taxation system (e.g., 9%), the investment appeal of high-dividend stocks is expected to be further highlighted.

Currently, dividend income is combined with comprehensive income and subject to progressive tax, with tax rates exceeding 40% for high-net-worth investors. However, if separate taxation is introduced, the tax burden will be reduced, making it likely that individual investors' investments in dividend stocks will be revitalized.

According to FnGuide, in the past 5 years, out of 822 listed companies in the Stock Exchange, 112 have either maintained or increased their cash dividends and dividends per share. These are classified as so-called 'Model Students in Dividends'.

In the financial sector, Samsung Fire & Marine Insurance, DB Insurance, Samsung Card, and JB Financial Group are representative. Particularly, Samsung Fire & Marine Insurance has announced plans to increase its dividend payout ratio to 50% by 2028, strengthening its shareholder return policy. There is a clear trend of share buybacks and dividend increases across the financial holding companies.

Among holding companies, LS and GS are recording dividend yields above the average, and industries such as telecommunications and food and beverage, including LG Uplus, Orion, and Lotte Wellfood, are maintaining a stable dividend stance.

Hongbum Kim, CIO of Yukyung PSG Asset Management, analyzed, “In the midst of weak export stocks, the relative value of high-dividend stocks is highlighted, and if the commercial code amendment is re-discussed in the future, additional upward momentum can also be expected.”

Apart from existing dividend stocks, those that have significantly increased dividends due to improved performance are also attracting investors' attention. Defense company LIG Nex1's total dividends last year amounted to 52.3 billion won, more than quadrupling compared to 2019. Operating profit in the second quarter of this year is expected to increase 70% year-on-year.

Korea Kolmar and Samyang Foods, benefiting from K-beauty, have also expanded their dividend size two to four times in recent 5 years, and construction stocks like Hyundai Engineering & Construction and HDC Hyundai Development Company are simultaneously benefiting from both dividend enhancement and the new government's domestic demand stimulus package expectations.

Especially considering the policy the government promoted last year centered on 'Separate Taxation at 9% For Dividend Increasers', companies that newly increase dividends can benefit more in terms of tax than mere high-dividend stocks. It is highly likely that a similar tax model will be pursued again.