As of the end of June, small shareholders holding less than 1% of Samsung Electronics and SK Hynix shares totaled over 11.4 million combined: 7.97 million at Samsung Electronics and 3.46 million at SK Hynix. Consequently, the stock prices and shareholder return policies of these two companies have become issues that directly affect not only major shareholders and institutional investors but also the assets of general investors. Recently, the stock prices of both companies have fallen by more than 30% from their all-time highs. While part of the reason for the decline despite record-breaking profits is that expectations regarding the AI industry and semiconductor market conditions were overly reflected, another factor is that shareholder return policies failed to meet investor expectations despite massive earnings.
Theoretically, shareholder return measures such as dividends or share buybacks serve as signals from management indicating confidence in future cash flows. Additionally, they function as a mechanism to reduce agency costs by returning excess free cash flow (FCF)—the cash generated from business operations after deducting investment needs—to shareholders rather than holding it unnecessarily as cash. When stock prices are below intrinsic value, repurchasing and retiring shares can increase equity value and earnings per share. However, aggressively buying back shares when stocks are overvalued or sacrificing research and development and capital investments could undermine corporate competitiveness. Therefore, a "principled shareholder return" is needed rather than one-off share buybacks.
U.S. companies have clear and shareholder-friendly shareholder return policies. On the 13th, SanDisk announced it would return 100% of its excess free cash flow over the next three years to shareholders through share buybacks. At the same time, it expanded its remaining share buyback authorization limit to $15.5 billion. While the scale of shareholder return may vary depending on future semiconductor market conditions, SanDisk has clearly stated its principle: faithfully investing for growth while avoiding hoarding excessive cash and returning all surplus to shareholders.
On the 19th, SK Hynix announced it would commit to returning at least 50% of its cumulative excess free cash flow over the three-year period from 2025 to 2027 as shareholder return. This expands upon its previous policy of returning within a 50% range of cumulative excess free cash flow over three years. Simultaneously, it decided to acquire and retire approximately 40 trillion won worth of its own shares. Samsung Electronics also announced a shareholder return plan totaling 90 trillion to 110 trillion won—representing 50% of its cumulative excess free cash flow from 2024 through this year. This reflects an intention to maintain existing policies while returning surplus cash during boom periods to shareholders. However, delaying announcements on the specific scale and methods of shareholder return caused stock prices that had risen during trading hours to fall shortly after market close.
To grow the capital market, listed companies must disclose their capital allocation principles and shareholder return policies in a predictable and transparent manner for shareholders. For example, it is advisable to regularly disclose targets for total shareholder return (TSR), dividend and share buyback and retirement plans, and adjustment conditions during deteriorating market conditions. Shareholder return does not mean emptying the company's coffers to fill shareholders' pockets; rather, it signifies adhering to the principle of allocating capital to its most productive uses. When this principle becomes firmly established, the Korean capital market will be able to take another leap forward.
in OPINION
