Samsung with Cash to Spare Announces "Surprise Dividends": The Founding Family Will Also Get 668.6 Billion Won

[경향신문]

Samsung Electronics, which earned operating profits of 36 trillion won last year, announced on January 28, that it would hand out special dividends of 1,578 won per share to its shareholders. Samsung shareholders will receive 1,932 won (1,933 won for preferred stocks) per share including the regular dividend (354 won) for the fourth quarter of 2020 this coming April. The founding family of Samsung Electronics including the late chairman Lee Kun-hee will receive a total of 668.6 billion won including the regular and special dividend. The money is expected to help the family pay for the inheritance tax for the property they will inherit from the late chairman.

This day, Samsung Electronics announced plans to hand out special dividends to return the accumulated free cash flow from the past three years (2018-2020) before announcing the Shareholder Return Program for the coming three years (2021-2023). Samsung Electronics shareholders as of December 31, 2020 will be eligible for the special dividend. Samsung is expected to pay shareholders 13 trillion won in dividends including the regular dividend and the special dividend.

Many experts had predicted that Samsung Electronics would opt to hand out special dividends instead of repurchasing shares given the increase of minority shareholders and the fact that Lee Jae-yong, vice chairman of Samsung Electronics had to find a way to pay his inheritance tax, but the amount of the special dividend was higher than market expectations (1,000 won). Choi Yoon-ho, president of business support at Samsung Electronics explained in a conference call, “We considered the social responsibility of the corporation in the current situation concerning the stock exchange, the uncertainty due to COVID-19, and the government’s efforts to support the livelihood of the people.”

Thanks to the latest decision, the late chairman will receive dividends of 482.8 billion won, vice chairman Lee 81.2 billion won, and Hong Ra-hee, former director of Leeum, Samsung Museum of Art 104.6 billion. The total amount of dividends paid out to the founding family last year exceeds 1 trillion won. Since the inheritance tax on the property of Lee Kun-hee, who died last October, is estimated at 11 trillion won, his family is expected to use the dividend to pay the inheritance tax.

Samsung Electronics also announced a new Shareholder Return Program, which will increase the regular dividend to an annual total of 9.8 trillion won, from the current 9.6 trillion won. The company will continue to return 50% of the free cash flow as in the previous three years. Choi explained, “We have a lot of free cash flow because we have not been able to carry out M&As in the last three years,” and said, “It is difficult to mention a specific date, but we are optimistic about the possibility of an M&A at a significant scale during this period (2021-2023).” This is the first time that a senior Samsung executive officially mentioned an M&A since the company acquired Harman, a company that makes automotive electronics systems, in February 2017. But many experts argue that there is little possibility of an M&A happening anytime soon. Besides, Han Jin-man, vice president of Samsung’s memory business, responded to a foreign press coverage claiming that Samsung would build another semiconductor factory in the U.S. and said, “Nothing has been decided yet,” and added, “We are reviewing all locations for the factory site including Giheung, Hwaseong, Pyeongtaek and Austin in the U.S.”

Samsung Electronics posted 35.9 trillion won in consolidated operating profits last year, a 29.6% increase from the previous year. It was the fourth highest profit in the company’s history. Sales also increased 2.8% to a total of 236.81 trillion won. Due to COVID-19, the company’s performance in the first two quarters last year was sluggish, but pent-up demand appeared in the third quarter and demand in connection to “life at home” surged simultaneously boosting sales of semiconductors, smartphones and home appliances. A look at just the fourth quarter of 2020 showed operating profits of 9.4 trillion won and sales of 61.5 trillion won. Operating profits increased 26% year-on-year, but was sluggish compared to the third quarter, when the company recorded operating profits of 12 trillion won. A closer look at each division showed operating profits of 3.8 trillion won in semiconductors, 2.4 trillion won in the mobile business, 820 billion won in home appliances including TVs and 1.7 trillion won in the display division. The semiconductor market condition was good, but profits fell short of expectations due to weaker memory prices and the appreciation of the Korean won.