S&P sees more SK hynix buybacks, warns of higher dividend bar

SK hynix could announce another share buyback of up to 40 trillion won ($28 billion) in the fourth quarter, as the AI memory boom fuels record shareholder returns from Korea’s two largest chipmakers, according to S&P Global Market Intelligence.

“We think that there will be more buybacks that will get announced in Q4,” Mohammad Hassan, S&P’s head of Asia-Pacific equities dividend forecasting, said in an interview with The Korea Herald in Seoul on Thursday.

“It would be on the lower end of maybe 20 trillion won or maybe the same, another 40 trillion won,” he said. Even after another large repurchase, SK hynix would have room to pay “some really good, decent dividends,” he added.

Together with Samsung Electronics’ record payout plan, SK hynix’s program could set a new benchmark for the Korean market and prompt other companies to follow suit, Hassan said.

He called the commitments by the two market leaders “another very big positive” for Korean equities.

"You’ll see more and more firms starting to emulate some of these things because it’s setting a standard and a bar for the market on what shareholders ought to be expecting."

SK hynix announced in August that it would repurchase 40 trillion won of shares between Aug. 20 and Nov. 19 and cancel them, citing a need to secure “fair value.” Its shares were 48.6 percent below their 2026 peak at the time, according to S&P.

“If your own stock is undervalued and you decide to buy that back, that’s a very strong signal you’re giving to the market,” Hassan said.

Following the announcement, S&P raised its fourth-quarter dividend forecast to 38,097 won per share from 27,268 won. The estimate comprises a regular dividend of 375 won and a special dividend of 37,722 won.

Based on projected 2026 free cash flow of 103 trillion won to 215 trillion won, S&P modeled additional buybacks of zero, 19 trillion won or 40 trillion won. The scenarios imply fourth-quarter dividends of 15,132 won, 28,170 won and 38,097 won per share, respectively.

S&P adopted the upper scenario after SK hynix replaced a framework that allowed annual returns to fall below 50 percent with a pledge to return more than 50 percent of cumulative free cash flow. The forecast remains low-confidence because the final payout will depend on cash generation, capital spending and management’s allocation between dividends, buybacks and investment.

A large special dividend, however, could set a higher bar that may prove difficult to maintain.

“If the market gets used to you paying high dividends and then suddenly you reduce that by 50 percent, it can be a disappointment,” Hassan said.

Samsung Electronics announced a record shareholder-return program shortly after SK hynix, estimating its total distributions at 90 trillion won to 110 trillion won. While SK hynix has emphasized buybacks, S&P assumes Samsung will distribute 80 percent of its remaining fourth-quarter return as dividends, resulting in a forecast of 9,149 won per share.

Their ownership structures help explain the split. Large share cancellations at Samsung could push the combined stake of Samsung Life and Samsung Fire & Marine above the 10 percent regulatory threshold, potentially forcing them to sell. At SK hynix, cancellations would increase SK Square’s stake and help it remain above the 20 percent regulatory minimum.

“SK hynix seems to have received a better response,” Hassan said. Samsung’s announcement was also received positively, though investors appeared to expect more, he added. Hassan said a firmer verdict should wait until third-quarter results and further guidance in late October.

Investor preferences and tax treatment will also shape the response. Buybacks can support the share price more quickly and signal undervaluation, while steadily growing dividends provide a stronger long-term signal.

“Buybacks can be more of a short-term and high-impact kind of thing,” Hassan said. “If dividends are growing sustainably and moving in the right direction, then that sends a very good long-term signal.”

Hassan declined to say which company would be better positioned to preserve shareholder returns in a memory-market downturn, but challenged the assumption that the AI cycle is already nearing its peak.

Competition from China or other suppliers could eventually pressure memory prices, while higher capital spending could reduce free cash flow. Even so, Hassan said the AI investment cycle remains in an early stage and projected cash generation through 2027 should remain sufficient to support both technology investment and shareholder returns.

“We are still in the middle of that entire AI play working itself out,” he said. “Even if you look at projections for 2027, the free cash flow numbers that we’re talking about are substantially high enough.”

Geopolitical competition is also reinforcing investment, Hassan said, as the United States and China compete for leadership in the future AI economy.

Korea has long struggled to close the valuation gap between its companies and global peers. The chipmakers’ cash windfall, combined with the government’s corporate value-up initiative, has raised hopes that their shareholder-return programs could mark a broader shift.

Hassan cited Japan and China, where regulatory efforts prompted more companies to pay dividends and buy back shares. Similar consistency in Korea could attract foreign investors for the long term, rather than only during short-lived rallies, he said.

Hassan said the announcements could help Korea attract investors who are willing to hold shares for the long term, rather than trade around short-lived rallies. But one round of large payouts will not, by itself, eliminate the Korea discount.

Investors will need to see several years of clear policies, transparent communication and consistent execution. For Hassan, the most meaningful sign of progress would be Korea becoming a permanent part of international investors’ equity allocations.

He also argued that Korea should spend less time reinforcing the discount narrative and more time demonstrating the strength of its companies.

“These are great companies, and they’re in the middle of some really important developments globally,” he said. “Now the question becomes: How do they keep their shareholders happy, how do they invest back into the company and the wider economy of Korea, and how does that take everyone forward?”