Dividend stocks are drawing attention again in the Korean stock market. More and more companies that used to pay almost no dividends are considering or actually carrying out dividend increases. Behind this shift is a change in the rules: separate taxation of dividend income.

It is worth starting with the structure: why Korean companies long avoided dividends, and why they are now starting to choose them again.

1. Why didn't companies or major shareholders pay dividends before?

Under Korea's old dividend tax structure, dividends were a burdensome choice for both companies and major shareholders. Dividend income was lumped together with interest income as financial income, and above a certain threshold it became subject to comprehensive taxation.

Under this structure, the more dividends rose, the faster the major shareholder's tax burden could climb. Companies had no reason to choose a policy that hurt their major shareholders, so dividends naturally fell down the priority list.

As a result, Korean companies became locked into a structure that favored investment, retained earnings or holding treasury shares over dividends.

2. In numbers, how unfavorable was the old dividend tax?

The key threshold was KRW 20 million a year. If financial income, meaning interest and dividends combined, exceeded KRW 20 million a year, that amount was added to earned or business income in the next year's comprehensive income tax filing and taxed at progressive rates.

If financial income was KRW 20 million or less, the tax was settled by a 15.4% withholding at the time of payment (14% income tax + 1.4% local income tax). The problem was that once it crossed KRW 20 million, dividends were combined with other income and the tax rate could become sharply unfavorable.

For major shareholders and high earners in particular, dividends came to be seen as "income that can cost you more the more you receive," and this numerical barrier was the most practical reason dividends were held back.

3. What did separate taxation of dividend income change, and how?

Separate taxation of dividend income taxes dividends on their own, without adding them to other income. Put simply, the tax rate is set in brackets based on "how much you received in dividends."

Dividends of up to KRW 20 million a year are taxed at 14%. Dividends above KRW 20 million and up to KRW 300 million are taxed at 20%, above KRW 300 million and up to KRW 5 billion at 25%, and large dividends above KRW 5 billion at 30%.

The key change is that dividends are no longer mixed with other income. Before, once dividends passed a certain amount they were combined with earned or business income and the rate could turn sharply unfavorable. Now tax can be calculated on dividends alone.

As a result, for major shareholders, dividends are no longer "income that flips the tax structure the moment you receive it"

4. So why are companies rethinking dividends now?

With separate taxation of dividend income, dividends are no longer a risky policy for companies. Raising dividends no longer causes a sudden jump in the major shareholder's tax burden, and shareholder returns create room for the company to be revalued.

Especially for companies that have long traded at a discount because "they make profits but don't return them to shareholders," dividends are the fastest way to regain trust. That is why the number of companies considering higher dividends, interim dividends and quarterly dividends is rising all at once.

5. Do dividends really benefit only major shareholders?

The most common misconception about dividends is that "in the end, only major shareholders pocket them." Structurally, however, dividends cannot be paid selectively to certain shareholders.

Holders of the same class of shares, whether major or minority shareholders, receive dividends at the same rate in proportion to the number of shares they own. In other words, if a major shareholder receives dividends, minority shareholders receive them on the same basis.

So a structure that blocked dividends for major shareholders also blocked dividends for minority shareholders, and the low-dividend problem in the Korean market was a problem of the whole structure, not of any one group.

6. Do treasury shares receive dividends?

Treasury shares do not receive dividends. Because they are the company's own shares held by the company, they are excluded from dividend payments.

This matters. The higher the share of treasury stock, the fewer shares actually receive dividends, so the same total payout can mean a relatively larger dividend per share. That is why cancelling treasury shares and raising dividends are often mentioned together.

7. Why don't growth and tech stocks pay much in dividends?

Growth and tech stocks share a common trait: they are at a stage where reinvesting cash in the business can earn higher returns than paying it out as dividends. For them, dividends mean sending cash outside the company, which can slow growth.

Conversely, for companies in mature markets with stable cash flow, dividends are a rational choice. That is why so many dividend stocks are found in telecoms, finance, utilities and some manufacturing.

8. Why do good dividend payers keep paying?

Companies that pay steady dividends often have predictable cash flow and no need for large new investments. For them, dividends are less a cost than an investment in keeping shareholders' trust.

So a dividend is not just handing out cash; it works as an indicator of a company's financial structure and management attitude.

BITPRESS Insight

The point of separate taxation of dividend income is not a tax cut for the rich. It is about normalizing the decision-making environment for companies and major shareholders so that choosing to pay dividends does not create distortions.

Major shareholders need to be able to receive dividends for minority shareholders to receive them on the same basis. The structure that blocked dividends ultimately blocked everyone's share.

Going forward, the key question in the Korean stock market is likely to be not "does this company make a profit?" but "how does this company share its profit?" Dividends are no longer a bonus; they are becoming a yardstick for judging a company's attitude.