[Deep Dive] Financial Stocks Value-up Supercycle: Investment Strategy in the Era of 50% Shareholder Return

Entering the Era of Structural Shareholder Returns

Domestic financial holding companies are shifting the paradigm of their shareholder return policies in line with the government's 'Corporate Value-up Program'. The trend of expanding cash dividends, which was often a one-off event in the past, is now evolving into a structural and long-term system that includes share buybacks and cancellations, regular quarterly dividends, and the introduction of tax-free dividends.

Major financial holding companies are redefining capital efficiency by using the Common Equity Tier 1 (CET1) ratio as a key indicator. With the established principle of returning capital exceeding the 13% CET1 ratio to shareholders, the market projects their total shareholder return rate to converge toward 50% in the medium to long term.

Diversification of Shareholder Return Methods

Normalization of Share Buybacks and Cancellations

Share buybacks and cancellations, which directly enhance Earnings Per Share (EPS) and Book-value Per Share (BPS), have become the core of shareholder returns over simple cash dividends. To resolve chronic low Price-to-Book Ratios (PBR), holding companies are regularizing policies to cancel a certain volume of treasury shares on a quarterly or semi-annual basis. This is the most direct method to increase the equity value of existing shareholders by reducing the number of outstanding shares.

Expansion of Tax-free Dividends

A newly highlighted shareholder return method is converting capital reserves into retained earnings for dividends. Under commercial law, this method generates a tax-free effect, exempting the dividend income tax (15.4%) when attributed to shareholders. Because it can increase the actual return rate before tax deduction, discussions and executions of its introduction are spreading rapidly, mainly among large financial holding companies, acting as a factor to elevate the attractiveness of dividend investments.

Implications and Risk Factors from an Investment Perspective

Differentiation in Profitability and Capital Management Capabilities

Not all financial stocks will benefit equally. The core of the value-up era depends on whether a company can defend its CET1 ratio through stable profit generation capabilities and strict Risk-Weighted Assets (RWA) management. Therefore, when analyzing individual corporate fundamentals, sustainable surplus capital generation capability should be prioritized over simple dividend yields.

Earnings Volatility Variables

Short-term variables also exist. Factors such as exchange rate fluctuations, real estate project financing (PF) asset soundness risks, and one-off costs related to incomplete sales can shrink surplus capital and affect the short-term volume of shareholder returns. However, the prevailing analysis is that these factors will not break the overarching trend of medium to long-term corporate structural improvement and dividend expansion.

Investment in domestic financial stocks is now transitioning beyond short-term profit realization into the realm of value investing, where stable and gradual cash flows can be expected. A strategy of continuously monitoring macroeconomic indicators and individual corporate capital adequacy is required.