SEOUL, Jan. 13 (Yonhap) — Samsung Electronics Co. will unveil its new shareholder return program late this month, industry officials said Wednesday, amid speculation that the South Korean giant could return significant capital to its stockholders in upcoming years for the group heir’s smooth succession.

Samsung, the world’s largest memory chip and smartphone maker, is expected to announce its new shareholder return initiative for the 2021-2023 period on Jan. 28 along with its fourth-quarter earnings report.

Local analysts widely expect that Samsung’s new policy will be more shareholder-friendly than the previous one as the company is likely to significantly increase its shareholder returns.

“In the past three years, the value of Samsung’s annual dividend returns stood at 9.6 trillion won (US$8.7 billion), but in the upcoming years, there is a high possibility that the company will present annual dividend returns of around 20 trillion won,” said Kim Kyung-min, an analyst at Hana Financial Investment. “This is because Samsung has boosted its capacity for larger shareholder returns following an increase in its operating profit.”

This photo taken on Jan. 8, 2021, shows outdoor signage at Samsung Electronics Co.’s office building in Seoul. (Yonhap)
This photo taken on Jan. 8, 2021, shows outdoor signage at Samsung Electronics Co.’s office building in Seoul. (Yonhap)

In 2017, Samsung announced a three-year shareholder return program that promised to return a minimum of 50 percent of its free cash flow (FCF). It then offered a quarterly dividend of 354 won per share, which translated into 28.8 trillion won of total dividend returns in the 2018-2020 period.

FCF refers to the cash left over after a company pays its taxes, operating expenses and capital expenditures.

If there is FCF left even after dividend payouts, Samsung said the remaining portion will be used either for additional cash dividends or share buybacks.

Analysts estimate that the value of Samsung’s remaining FCF even after dividend payouts in the past three years reached around 7 to 8 trillion won.

They predict that Samsung will use remaining FCF for additional cash dividends for shareholders rather than share buybacks considering that Samsung Group heirs, including Samsung Electronics Vice Chairman Lee Jae-yong, need to pay massive inheritance taxes following the death of group chief Lee Kun-hee in October.

Samsung heirs are estimated to pay around 11 trillion won in inheritance taxes for the late chief’s stock assets worth around 19 trillion won.’

This photo provided by Samsung Electronics Co. shows Samsung Electronics Vice Chairman Lee Jae-yong (R) checking a network equipment manufacturing facility at the company’s plant in Suwon on Jan. 5, 2021. (PHOTO NOT FOR SALE) (Yonhap)

Analysts predict that Samsung can give extra cash dividends of around 1,000 won per share. Combined with the quarterly dividend of 354 won per share for the fourth quarter, Samsung stockholders are expected to get returns of at least 1,300 won per share in the upcoming weeks.

Analysts said Samsung’s new shareholder return program may come with an increased portion of FCF allocated for shareholder returns.

Samsung is expected to enjoy robust earnings this year with rising expectations of a “super cycle” in the memory chip industry. Some analyst have predicted Samsung’s annual operating profit may reach around 50 trillion won.

With such expectations, analysts predict that Samsung’s FCF will be larger than the previous three-year period, and that the company has enough room to increase its cash dividends.

“It is expected that Samsung is likely to increase the portion of FCF allocated for shareholder portions from the current 50 percent and come up with a policy targeting enhanced dividend payouts,” said Kim Sun-woo, an analyst at Meritz Securities. “If uncertainties surrounding Samsung get stabilized, its move of delivering enhanced shareholder value will pick up pace.”

Samsung has been keeping mum on its new shareholder return program, but industry insiders said the company will be assessing various scenarios related to enhanced dividend policy.’

Some critics pointed out that increased dividend payouts may deter Samsung’s merger and acquisition (M&A) plans for future growth.

In 2017, Samsung stated that future M&A investments will not be deducted from FCF.

“It’s possible that Samsung will come out with a shocking shareholder return policy in regards to heir’s inheritance tax payments, but considering long-term growth, increasing dividends may not be the only answer,” said an industry official who asked not to be named. “Samsung is reaching a point where massive M&A investments are needed, so the company will have a lot to think about.”