"Jensen Huang's Promise." It's hard to get a dividend alone

Last year, your reporter had a conversation with a prominent figure in the financial sector who shared his investment strategy, particularly his penchant for Industrial Bank of Korea (IBK) stocks. He emphasized the allure of dividends, citing IBK's stability as a state-owned entity and its annual dividend yield of 7 percent. With IBK's Dividend Per Share (DPS) at 984 won, and its dividend yield recording 7.3 percent of the stock price one week prior to the declaration date, shareholders can anticipate a solid annual return. This assurance of consistent returns, coupled with the perceived security of investing in a state-owned institution, makes IBK shares an attractive option for those seeking safe investment instruments, such as for retirement planning. This episode shows the pivotal role of dividends in shaping investment decisions and enhancing shareholder value.

Yet, recent market trends suggest that a company's future value may eclipse dividends in driving shareholder value. Samsung Electronics serves as a prime example, with its stock price rebounding to 80,000 won and market capitalization surpassing 500 trillion won within three years. The catalyst behind this surge was Nvidia CEO Jensen Huang's endorsement, “JENSEN APPROVED,” at GTC 2024, where Samsung showcased its cutting-edge fifth-generation 12-layered high bandwidth memory. This innovation reignited optimism in Samsung's prospects, propelling its stock price by 5.6 percent in a single day and attracting foreign investors amidst semiconductor market recovery. With expectations mounting for Samsung to regain its dominance in high bandwidth memory, a position previously ceded to SK hynix, the South Korean electronics giant witnessed a remarkable 5.6 percent increase in its stock price on March 20 alone. As the semiconductor market rebounded, foreign investors joined the optimistic trend, offering a glimmer of hope to shareholders who had invested in the company at the 80,000 won mark.

Shareholders exhibited a strong demand for dividends at the recently concluded regular shareholders' meeting, notably evident at Samsung C&T Corporation. Five activist hedge funds, including City of London Investment, united to advocate for the company's repurchase of treasury stocks worth 500 billion won and a dividend yield increase exceeding the company's initial proposal by over 70 percent. This tactic, termed "wolf pack activism," draws parallels to wolves hunting in packs for their prey. The activist hedge funds collectively sought a total of 1.24 trillion won to be redistributed to shareholders, surpassing the company's free cash flow in 2023. Despite the company securing a landslide victory in the vote, executives found themselves visiting the homes of retail shareholders, urging them to vote against the hedge funds' proposal. They argued that complying with the funds' demands would deplete funds available for future investments.

In 2013, Elliott Investment Management acquired 4.3 percent of the shares of NetApp, a U.S.-based data management and storage company renowned for its consistent presence on Fortune's list of the 100 Best Companies to Work for, maintaining this status for 13 consecutive years. Following Elliott's purchase of shares of NetApp, NetApp experienced significant year-on-year growth stagnation. Responding to pressure from Elliott, the company escalated its treasury stock purchases from $1.6 billion to $3 billion, in addition to unveiling plans for quarterly dividends of 15 cents per share. Concurrently, NetApp announced intentions to lay off 900 employees, citing a reallocation of resources towards shareholder interests over employee retention. A year later, Elliott substantially divested its holdings in NetApp.

While increasing dividends and conducting stock repurchases and treasury stock reductions may temporarily boost stock prices, it's crucial to recognize the broader implications. The government's quandary regarding the "Korea discount" syndrome and its pressure on companies to enhance their value are understandable concerns. However, what truly matters is the fundamental value of companies. To remain competitive in the global technology landscape, investment in research and development, infrastructure, and human resources is indispensable. Instead of relying on temporary measures to boost stock prices, companies must focus on sustainable strategies that foster long-term growth and recognition by global entrepreneurs such as Jensen Huang.