'Sin stocks' surge on hopes of higher dividends

"Sin stocks" of tobacco, alcohol and gambling companies have gained recently on hopes of bigger dividends after the administration's new economic team introduced measures to induce companies to pay higher returns to investors in a bid to revitalize the sluggish economy, data showed Wednesday.

According to market researcher FnGuide, six "sin stocks" related to tobacco, alcohol or gambling rose an average of 7.71 percent over a two-month period since June 13 when Choi Kyung-hwan, a ruling party legislator and close aide to President Park Geun-hye, was appointed as the new finance minister.

After Choi pledged a raft of measures aimed at propping up tepid domestic consumption and the equity market, Korean shares rallied on hopes of a better economy and market-friendly policies. 

In gambling, Kangwon Land, the only casino that is open to Korean nationals, jumped 18.71 percent on speculation that the company may increase its already high dividends. The company has returned about half of its net income to investors as dividends.

Grand Korea Leisure, an operator of foreigners-only casinos, inclined 4.53 percent during the cited period.

Shares of KT&G, the state-run tobacco maker, jumped 9.83 percent during the period. Its dividend payout ratio has been 59.06 percent in the last three years.

Among liquor makers, Lotte Chilsung Beverage Co., a unit of Lotte Group, soared 15.16 percent over the last two months as its new beer brand was well-received in the market, while the strong local currency cut import costs of ingredients.

HiteJinro Co., which has returned about 90 percent of its net income to shareholders in the last three years, advanced 7.27 percent in the period.

As market expectations have already been reflected in shares with dividend growth potential, some investors are refocusing on the Bank of Korea's policy meeting this week that will decide the key interest rate for August.

A clear majority of traders and brokerage houses forecast that the BOK will cut the policy rate by a quarter point from 2.5 percent on Thursday after the finance minister put overt pressure on the central bank to join its economic stimulus efforts. 

If the BOK does lower the policy rate, analysts expect the deposit interest rate of commercial banks will follow suit, further closing the gap between the deposit and lending rates. 

South Korea's bank lending rates for new loans held steady in June after falling to a record low in the previous month, according to BOK data.

"If the key interest rate goes down, the bank lending rates will further drop," said Seo Hyung-jong, who manages VIP funds at Daishin Securities Co. "It would turn investors' eyes to other options and a high dividend yield rate."

Analysts say the rate cut would have a direct impact on construction, bank and securities shares because a lower rate may encourage companies to borrow more to invest in real estate. A lower borrowing cost could also channel more funds into the equity market in search of higher returns, they say. 

"Bank, construction and securities shares are considered to be direct beneficiaries of lower interest rates," said Park Yeon-chae, a senior researcher at Kiwoom Securities. "Shares that have maintained an over 3 percent dividend yield rate could also be more appealing to investors." (Yonhap)