"LG Innotek's Stock Rally Leaves Dividend Yield Behind"

[Korea Financial Times, Gwak Horyung] LG Innotek's dividend yield is projected to fall below 0.1% as its stock price has surged nearly fourfold over the past year. The company has set a plan to raise its payout ratio by 10 percentage points going forward, but because its share price has climbed far faster than its net profit, shareholders are seeing the appeal of its dividends sharply diminished.

Since 2022, LG Innotek's dividend policy has been to return "at least 10% of consolidated net income (excluding one-off, non-recurring gains)" — that is, a payout ratio of at least 10%. Furthermore, in a Value-up disclosure in November 2024, the company announced plans to gradually raise its payout ratio target to 15% by 2027 and 20% by 2030.

Since adopting this dividend policy, LG Innotek's actual payout ratio has risen every year: 8% in 2021, 10% in 2022, 10.9% in 2023, 11% in 2024, and 13% in 2025.
However, the actual dividend amount shareholders receive has been on a steady decline since 2022. The dividend per share fell 55% over three years, from KRW 4,150 for fiscal year 2022 to KRW 1,880 for fiscal year 2025. This is because net income — the denominator behind the payout ratio and the source of dividend funding — dropped from KRW 979.8 billion in 2022 to KRW 341.3 billion in 2025.

LG Innotek's committed dividend policy is also relatively low compared with other LG Group affiliates.

LG Electronics, for example, has set a target of paying out at least 25% of its consolidated net income as dividends. It has also carried out additional shareholder returns, using part of the proceeds from last year's IPO of its Indian subsidiary to conduct the company's first-ever share buyback and cancellation aimed at shareholder value.

LG Uplus, meanwhile, pays out at least 40% of its separate (non-consolidated) net income, with a consolidated payout ratio in the 45–75% range. Even though LG Uplus and LG Innotek posted similar net income over the past three years, LG Uplus's total dividend payout was 5.4 times larger than LG Innotek's due to differences in dividend policy.

For shareholders who have entered LG Innotek stock within the past year, the dividend may feel especially thin. While the per-share dividend has declined due to falling net income, the per-share price has surged due to the stock rally. LG Innotek's market capitalization rose 67%, from KRW 3.83 trillion at the end of 2024 to KRW 6.41 trillion at the end of 2025. This year, based on today's closing price, the stock is up 122% from the end of last year.

As a result, the dividend yield has broadly trended downward — 1.5% in 2022, 1.1% in 2023, 1.3% in 2024, and 0.7% in 2025.

Fortunately, an earnings rebound this year could support higher dividends. Securities firms project LG Innotek's 2026 net income at KRW 850–950 billion, 2.5 to 3 times higher than the previous year.

However, given how sharply the stock price has risen, the current dividend policy may struggle to guarantee even the already unsatisfactory dividend yields of the past. Even if net income triples year-on-year, a payout ratio of 13% applied to the current share price would yield a dividend yield of just 0.08%. Even bringing forward the 2030 target payout ratio of 20% would only produce a yield of 0.13%.

This is ultimately seen as a result of the stock price pricing in expectations for new businesses — led by semiconductor substrates — far more aggressively than current earnings justify. Because the stock's rise has vastly outpaced the improvement in earnings, the dividend appeal shareholders feel under the existing policy framework is bound to be greatly diminished.

In the area of high-performance semiconductor substrates FC-BGA, which continues to face severe supply shortages, LG Innotek is only now ramping up its business in earnest. The company is reportedly set to begin mass production for PC CPU applications in the second half of this year, with mass production for AI server applications targeted for next year. Eugene Investment & Securities estimates LG Innotek's FC-BGA revenue at KRW 400 billion in 2027, over KRW 1 trillion in 2028, and over KRW 2 trillion in 2030. The operating profit share of the Package Solution division, which handles semiconductor substrates, is projected to expand from 19% last year to 41% by 2028.

An industry official in the securities sector said, "LG Innotek's entry into the high-value-added semiconductor substrate market is positive in terms of securing long-term growth drivers," but added that "with the stock price excessively pricing in future earnings, the imbalance with shareholder returns could persist."

Gwak Horyung (horr@fntimes.com)