A number of conglomerate heads have been working for free. Samsung Group chairman Lee Kun-hee has not received wages since 2010, along with Hanwha chairman Kim Seung-youn, GS chairman Huh Chang-soo and SK chairman Chey Tae-won.

But thanks to the jaw-dropping amount they get in dividends, these tycoons are able to live in luxury. Samsung’s Lee, for instance, bagged 68.8 billion won ($67.4 million) of dividends from his shares in Samsung Electronics in the fiscal year of 2013. Hyundai Motor Group chairman Chung Mong-koo and his son Eui-sun took home 22.2 billion and 4.9 billion won, respectively. 

But experts say these conglomerates have been rather stingy in handing out dividends.

According to the MSCI Index, listed South Korean companies paid out 1.33 percent of their profits as dividends in 2013. The figure was the lowest among the 45 countries surveyed for the index.

The government is now urging conglomerates to step up their dividend payouts to stimulate the market’s cash flow. Industry watchers, however, do not believe this will happen soon.

“The traumatic Asian currency meltdown of 1997 has made companies store cash instead of sharing it,” said one market expert.

“Moreover, the negative public sentiment toward rich men becoming even richer through dividends are ironically preventing them from becoming more generous by handing out dividends since it would be mostly the larger shareholders who were the biggest beneficiaries.”

Against such a backdrop, what would motivate South Korean conglomerates to share more of their profits? 


Foreign firms eager to pay up

Samsung Electronics, the country’s largest smartphone, TV and semiconductor company, posted 17.9 trillion won in operating profit in 2013. It paid out 12 percent, or 2.1 trillion won, of the profit as dividends.

But the figure is still far behind Apple’s $37 billion (accounting for almost 30 percent of its annual operating profit) in the same year. The iPhone maker has been increasing its dividend payouts to dispel investor anxiety following the death of Steve Jobs in 2011.

But even Apple’s dividend ratio is smaller than Taiwan-based independent semiconductor foundry TSMC, whose average dividend payout ratio for the past two years stood at 44.1 percent of its operating profit.

If Samsung Electronics raises its dividend payout ratio to the level of Apple, Lee Kun-hee can bag a total of 100 billion won with his 3.38 percent stake. When adjusted to the ratio at TSMC, his yearly income would jump to 250 billion won.

Moreover, it could have a spillover effect on other sectors such as Samsung Life Insurance, which holds 7.21 percent of Samsung Electronics, and Samsung C&T Corporation, which holds 4.96 percent.

“If Samsung Electronics raises the dividend payout ratio by 10 percent, it will end up giving the life insurance unit an additional 262 trillion won after taxes,” said Yoon Tae-ho, an analyst at Hanwha Investment & Securities.

This will once again lead to a heavier wallet for Lee, who has 415.1 million shares in Samsung Life Insurance and 22 million shares in Samsung C&T.

The same formula could be applied to Hyundai Motor Group, the country’s second-largest conglomerate by assets. 

If Hyundai and Kia’s largest shareholders are given dividends based on ratios given at their global market rivals Toyota, which has offered 28.7 percent of its net profit as dividends, Chung Mong-koo’s income would rocket to 62 billion won. He holds a 5.17 percent stake in Hyundai Motor.

His son Eui-sun, who holds a 1.74 percent stake in Kia, would bag 13 billion won instead of the current 4.9 billion won. 


Attraction for holding companies

For holding companies, dividends are a bigger source of profit.

SK Group chairman Chey Tae-won received 28.5 billion won from his holding company ― SK C&C ― in 2013, as part of the 67.2 billion won doled out to shareholders from its 124.6 billion won net profit. The company’s dividend payout ratio consequently stood at around 54 percent.

LG Group’s holding company LG Corp. also gave its chairman Koo Bon-moo 19 billion won and vice chairman Koo Bon-joon 13.3 billion according to a 49 percent payout ratio.

These figures, however, still lag behind their global rivals.

AT&T, the U.S.-based telecommunications company, gave out 97 percent of its net profit as dividends. If Chey, who owns about 33 percent of SK C&C, raises the dividend payout ratio to AT&T’s level, he could walk home with 51.3 billion won.

General Electric, one of the world’s largest electronic appliance makers, returned 56 percent of its profits to the shareholders. If LG did the same, Koo Bon-moo would be offered 21.6 billion won in dividend profits, while vice chairman Koo Bon-joon would get 15.1 billion won.

“High dividends attract global investment. AmorePacific, South Korea’s No. 1 cosmetics maker, handed out 20.8 billion won of its 37.7 billion won net profit as dividends last year. It is more than half of its profit and we see it as a sign that the company is looking for global investors,” a market analyst said. 


Not all are sharing

Google and Yahoo, two of the world’s leading information and technology firms, have yet to offer dividends.

“There are times when you need to stack the cash and reinvest it. The volatile IT environment suggests that it is not still the right time to celebrate with dividends. Furthermore, investors and executives still profit from rising stock prices,” an IT industry insider said on condition of anonymity.

By The Korea Herald Special Investigative Team(baejisook@heraldcorp.com)

Kwon Nam-keun
Hong Seung-wan
Sung Yeon-jin
Bae Ji-sook
Yoon Hyun-jong
Min Sang-seek
Kim Hyun-il