In recent years, "shareholder return" has become a "hot" term in the capital market. Especially this year, in the exchanges between investors and listed companies, shareholder return is a must-discuss topic. The regulatory authorities have also repeatedly proposed to enhance the sense of gain for investors, which in essence means improving the shareholder return of listed companies.

Shareholder return refers to the capital gains plus dividends of a listed company over a period of time. Generally speaking, there are three types of shareholder returns.

First is dividend distribution. Dividend distribution is the most direct way for listed companies to return to shareholders. Through dividends, on the one hand, listed companies distribute part of the surplus cash beyond operating funds to shareholders, which improves the capital utilization efficiency and return on equity of the listed companies themselves, benefiting market value performance; on the other hand, shareholders obtain continuous dividend returns without reducing their equity proportion in the listed companies. This is a win-win situation. For investors who insist on long-term investment, the continuous dividend distribution of listed companies is more meaningful. Whether it is used for reinvestment of dividends or for other purposes, the total return brought by continuous dividend distribution is very considerable in the long run.

Advertisement

Second is share repurchase and cancellation. Listed companies use their own funds to repurchase stocks in the open market and cancel them, reducing the total share capital, which is also a very important way for listed companies to return to shareholders. Through share repurchase and cancellation, listed companies can increase the shareholding ratio of existing shareholders in the company, while increasing earnings per share and boosting stock price performance. Taking the US stock market as an example, according to statistics, the amount of share repurchase and cancellation has gradually exceeded the amount of dividend distribution, becoming a more important way for listed companies to return to shareholders.

Third is capital gains. In many cases, when people talk about shareholder return, they are more referring to the narrow sense of shareholder return, which is dividends, repurchase, etc. However, there is no doubt that capital gains are also an important part of shareholder return, even the most important part. However, dividends and repurchase can be controlled by listed companies themselves, while capital gains depend on many factors and will fluctuate greatly. But in the final analysis, it still requires listed companies to maintain sustainable and high-quality growth. If listed companies can maintain a good competitive advantage and continue to compound growth at a certain speed, this long-term stable growth will definitely be reflected in the market value, bringing capital gains to shareholders, thus providing a good shareholder return.

The shareholder return of listed companies is a combination of the above three. In the past, with the rapid economic growth in China, all industries grew rapidly. At that time, the best shareholder return strategy for excellent listed companies was to increase capital expenditure, continue to expand reproduction, and seize growth opportunities. However, as China's economic growth has shifted gears, from the era of rapid growth to the current era of high-quality development, many industries have entered the mature stage, and high-growth industries are becoming increasingly scarce. How to allocate capital and how to comprehensively carry out shareholder return has become one of the difficult problems to test the wisdom of the management of listed companies.

In my view, listed companies should combine their own differentiated situations and carry out shareholder return according to local conditions.

For companies with relatively stable stock prices and valuations that are not significantly undervalued, they can maintain continuous and stable dividend distribution and formulate a public shareholder return plan to give investors a reasonable and clear dividend expectation. Of course, the dividend ratio needs to be combined with the company's business model and operating conditions, and cannot be generalized. For example, for brand consumer companies and internet companies with strong operating cash flow and not much capital expenditure demand, the dividend ratio can be set relatively high, and even full dividend distribution can be considered to enhance the sense of gain for investors. There are also some companies with good free cash flow, very healthy balance sheets, and a lot of surplus cash accumulation. They can further increase the dividend intensity through special dividends. Because a large amount of idle funds in banks or purchasing low-yield financial products will only result in low capital utilization efficiency, and these funds are generally not fully reflected in the market value. Therefore, gradually returning these cash to shareholders is the embodiment of maximizing shareholder interests.

For companies with relatively low stock prices and company valuations that are significantly undervalued compared to the same industry or similar enterprises, listed companies can implement continuous share repurchase and cancellation. Especially when listed companies encounter special public opinions, or the company's strategy, strategy, and operating conditions are temporarily misunderstood by the market, leading to significant fluctuations in stock prices, repurchase is a very good tool. Companies can effectively boost shareholder confidence through rapid and large-scale repurchases, and repurchasing their own stocks at low prices is also a good way to use funds. For many companies listed in both A and H shares, if the H share price is significantly lower than the A share price for a long time, they can highly value the method of repurchasing and canceling H shares. This is a very cost-effective strategy for enhancing the value of both A share shareholders and H share shareholders. In addition, for many Hong Kong-listed companies, the dividend tax for Hong Kong stock connect investors is relatively high. To reduce the tax burden on this part of investors, they can also consider using the method of repurchase and cancellation more.

For listed companies still in the growth stage, the best shareholder return is still to maintain growth, especially sustainable and high-quality growth. This requires the company's management to be enterprising, continuously strengthen the company's competitive advantages, and seize business growth opportunities. If the company's revenue and profits can continue to grow, the market value growth brought about will also bring a good return to shareholders.In summary, listed companies need to combine their own circumstances to increase shareholder returns in different ways, enhancing investors' sense of gain.

We are very pleased to see that, with the successful transformation of China's economy into a high-quality development stage, and accompanied by the strong advocacy of the regulatory authorities and the widespread call from investors, the awareness of shareholder returns among listed companies has significantly increased in recent years, and the concept of maximizing shareholder interests has gradually gained recognition. We believe that, as a whole, the space for shareholder returns of A-share listed companies is still very large. On the one hand, there is still room for improvement in the dividend payout ratio and repurchase efforts of a large number of listed companies; on the other hand, with the steady recovery of China's economy and more companies going global, the opportunities for continuous business growth of many listed companies have become clearer. In the long run, this will bring continuous and stable shareholder returns to investors.