Samsung electronics plans to boost shareholders’ returns, the Korean tech giant announced Tuesday. The announcement comprised an increase in dividends and buybacks and a review to streamline its corporate structure.
Samsung said to return 50% of its free cash flow this year and next to shareholders, but the company had already claimed last year it would pay out 30% to 50%. It also guaranteed to return net cash in excess of 65 to 70 trillion won to shareholders. This will halt Samsung’s net cash from strengthening from the current level, however investors projected that the pile would shrink to their profit instead. As it is, the cash has caused return on equity to drop in recent years.
This news followed Elliott Management, a New York-based hedge fund led by activist investor Paul Singer’s open letter to the company last month shaking for an overhaul. Elliott suggested a one-time special dividend of 30 trillion won. The company says it needs the cash cushion to keep capitalizing during slumps.
Samsung also revealed it has only 40% of its net cash in Korea, where most of its costs are. Bringing home the excess from abroad could be complicated or subject to taxes. Still, a way to tap that cash should be trailed.
At the moment signs are positive for the bigger changes. In the meantime Samsung set a six-month timeline to conclude the optimal corporate structure, taking into consideration the possibility, of splitting the company into a holding firm and an operating one as suggested by Elliott.
Samsung group look like moving toward a simpler structure, may be at a slower pace than what investors are looking for. Samsung is probably moving very slowly in improving shareholder returns. It’s worth it to keep prodding.