[비즈한국] The semiconductor industry giants were the primary force behind the KOSPI index’s recovery to the 6,900 level last week. As SK Hynix announced a share buyback and cancellation plan worth 40 trillion won, followed by growing expectations for a massive shareholder return from Samsung Electronics, these two stocks propped up the market floor. Then, after the market closed on the 21st, Samsung Electronics approved a return plan worth approximately 90 to 110 trillion won at its board meeting. Both companies, which have faced pressure for additional returns commensurate with their immense cash-generating power, have now responded to market expectations in tandem.
The background to this is a semiconductor boom. Riding the AI wave, both companies have seen record-high earnings and cash flows, leading to increased questions about how to utilize their accumulated cash. Samsung Electronics has set a standard to return 50% of its free cash flow for 2024–2026, while SK Hynix has committed to returning "over 50%" of its cumulative free cash flow for 2025–2027 to shareholders. This coincides with the government's "Value-up" policy, which pushes for lower dividend taxes and solutions to undervaluation. However, this return cannot be viewed solely as a result of the policy; Samsung’s return principle was already established in early 2024, and the semiconductor boom provided the necessary funding.
What stands out is that the methods highlighted by the two companies are different. Samsung Electronics is leading with approximately 30 trillion won in cash dividends for the third quarter, while SK Hynix has decided to buy back and cancel 40 trillion won worth of its own shares. Of course, both companies use a mix of both. Samsung will review dividends and share buybacks/cancellations for the remaining return portion at its board meeting next January, and SK Hynix also uses cash dividends in parallel. However, the difference lies in the primary "card" each company led with in its recent announcement.
The market also views the differences in the companies' governance structures as a factor influencing their choices. If Samsung Electronics were to cancel a massive amount of treasury stock, the stake held by Samsung Life Insurance and Samsung Fire & Marine Insurance could rise above the 10% regulatory limit under the Financial Industry Separation Act. Conversely, SK Hynix’s cancellation increases the stake of its largest shareholder, SK Square, providing more breathing room for the 20% stake requirement mandated by the Fair Trade Act. While this is a market interpretation rather than an official company explanation, it is a plausible context for their choice of method.
However, for individual investors, it is more important to consider how the method—dividends versus cancellations—affects how they receive their money and the taxes they must pay. Dividends involve the company distributing its earnings directly to shareholders in cash. The benefit is tangible as cash is deposited into one’s bank account. On the flip side, 15.4% is withheld as dividend income tax, and if total financial income (interest + dividends) exceeds 20 million won per year, it becomes subject to global taxation. Starting this year, investors can choose separate taxation for cash dividends from high-dividend listed companies that meet certain requirements, but this does not apply automatically to all dividends. Investors must check if the company is eligible and consider the scale of their financial income; the tax-saving effect is relatively greater for those whose financial income exceeds 20 million won. If the money isn't needed immediately, one could reinvest the dividends or receive them within a tax-advantaged account like an ISA to reduce taxes.
Share buyback and cancellation follow a different logic. When a company buys back and destroys its own shares, the number of outstanding shares decreases, increasing the ownership stake and earnings per share (EPS) for remaining shareholders. However, this does not mean the stock price will automatically rise. Because the company’s cash is reduced by the cost of the buyback, the price at which the shares were purchased is crucial. If purchased cheaply, it benefits the remaining shareholders, but if purchased at an excessively high price, it could actually be a loss. Regarding taxes, there is no dividend income tax on the remaining shareholders at the time of cancellation, and for general retail investors trading domestic listed stocks on the exchange, there is no capital gains tax on the profit, making it potentially more tax-efficient than dividends. However, it is important to note there is a securities transaction tax when selling, and major shareholders are subject to capital gains tax.
Therefore, which option is more advantageous depends on the individual. For someone who needs cash annually, such as a retiree planning to cover living expenses with dividends, dividends are welcome. Conversely, for someone who does not need immediate cash and wants to grow their assets while minimizing taxes—especially those in higher tax brackets due to significant financial income—cancellation might be more attractive. For this reason, individuals should not just compare the total amounts of 100 trillion versus 40 trillion won, but evaluate three specific points. First, if it is a dividend, what is the after-tax dividend yield compared to the current stock price? Second, if it is a cancellation, what percentage of the total shares is actually being destroyed, and at what price is the company buying them? SK Hynix’s 40 trillion won accounts for about 3.3% of its outstanding shares. Third, is the return based on a principle that will continue every year rather than a one-time event? Even for Samsung, the 90–110 trillion won figure is not entirely confirmed as cash dividends. What has been presented is the 30 trillion won cash dividend plan for the third quarter, with specific amounts and methods for the remaining return to be decided at the board meetings in late October and next January.
Before cheering for the announcement, one must also look at the price and industry conditions. The stock prices of both companies rebounded significantly after the news and expectations of shareholder returns were announced. If one chases the stock late, solely because of the good news, they might end up buying at a price where expectations are already reflected or become exposed to short-term volatility. Above all, shareholder returns are only sustainable when supported by strong earnings. Since the funding is linked to free cash flow, the scale of returns could decrease if the semiconductor market takes a downturn. Nevertheless, the government’s tax incentives and corporate shareholder returns could represent a real breakthrough in resolving the long-standing "Korea Discount." The decisions by these two companies are a matter of "how to return to shareholders" for the firms, but for individuals, it is a matter of "does this method fit my taxes and goals?" Rather than being surprised by the size of the announcement, it is more important to analyze how that money reaches you.