LG Group improves dividend policy transparency

A growing number of LG Group units have unveiled their dividend policies for the next three years for the first time in their history, as they are doubling down on efforts to incorporate environmental, social and governance (ESG) considerations into their management plans.

Recently, LG Electronics Inc., LG Display Co., LG Innotek Co., LG HelloVision Corp. and G II R Inc., a marketing firm, joined other affiliates to improve their dividend policy predictability, according to their holding company LG Corp on Sunday.  

In 2020, LG Corp., LG Chem Ltd. and LG Uplus Co. became the first LG Group subsidiaries to share medium-term dividend policies. Last year, LG Household & Healthcare Ltd. followed suit.

Last month, LG Electronics announced that it would spend more than 20% of its consolidated net profit, excluding one-off gains, on dividend payments, for the next three years starting from this year.

It was the first time for the world's largest OLED TV maker to announce a stable dividend policy for the next few years.

LG Display, a manufacturer of LCD and OLED panels, recently decided to pay annual dividends equivalent to more than 20% of its consolidated net profit over the next few years.

LG Innotek Co., a manufacturer of mobile phone parts such as camera modules, earmarked 10% or more of its net profit for dividend payments.

HIGHER DIVIDEND PAYOUT, INTERIM DIVIDENDS

LG Uplus bumped up its dividend payout ratio this year to 40% of net profit on a standalone basis, versus the previous year's 30%.

To bolster shareholder value, the mobile carrier bought back 100 billion won ($83 million) of its own shares last year, while unveiling a plan to introduce an interim dividend payment policy.

LG Corp. boasts the highest dividend payout ratio among LG Group units. In 2020, it pledged to pay annual dividends equivalent to half that year's net profit and at least that much or more in the years going forward.

LG Chem and LG Household & Healthcare will each spend some 30% of their net profit as dividend payments.

South Korea's manufacturing companies were unwilling to disclose long-term dividend policies, which could be subject to change depending on capital expenditures and merger or acquisition plans.

Cash-rich Samsung Electronics was the only exception. It has shared its dividend policy on a three-year basis since 2018.

But the atmosphere has changed since the start of this year. As leading conglomerates are incorporating ESG considerations into their business, an increasing number of Korean companies have embraced long-term dividend policies.

After delivering record earnings in 2021, other South Korean companies raised dividend payments. SK Hynix Inc., POSCO Co., Samsung SDI and Lotte Fine Chemical Co. announced an increase in their dividend payouts last month.

SK Hynix, the world's second-largest memory chipmaker, also shared a plan to make quarterly dividend payments from this year.

Samsung SDI will allocate 5 to 10% of its free cash flow, or the money it has left over, for additional dividend payments.

MSCI and other ESG rating agencies evaluate companies primarily based on the predictability of their dividend payments and fulfillment of the policy, rather than the payment amount.

To receive high ESG scores, a company needs to share a detailed dividend policy – such as the payment amount, payout ratio and payment timetable, as well as how it will pay the dividends – in an informative enough manner for shareholders to make an investment decision.

Their dividend policy also needs to reflect their peers’ dividend payment practices and the impact on their share prices.

Write to Hyung-suk Song and Hyung-kyu Kim at click@hankyung.com
Yeonhee Kim edited this article.