Analysis of Samsung Electronics' Special Dividend Expectations and Foundry Turnaround

Structural Background of Samsung Electronics' Shareholder Return Policy and Foundry Profitability

The recent market dynamics surrounding Samsung Electronics are largely driven by two factors: the visible turnaround in the profitability of its foundry division, and the growing expectation of a large-scale special dividend ahead of the conclusion of its 2026 shareholder return cycle. As the recovery in the memory semiconductor cycle aligns with performance improvements in the non-memory sector, market projections of expanded free cash flow (FCF) are gaining traction.

Visibility of the Foundry Division's Turnaround

Years of significant capital expenditures (CAPEX) and efforts to stabilize yields in advanced nodes have reached an inflection point, translating into tangible financial results. Entering the second half of 2026, yields for the 3-nanometer (nm) and below Gate-All-Around (GAA) processes have begun to exceed the break-even point, accompanied by an increase in orders from fabless clients in the artificial intelligence (AI) accelerator and high-performance computing (HPC) sectors.

• Rising Utilization Rates in Advanced Nodes: As of the third quarter of 2026, the utilization rate of key advanced processes is estimated to have recovered to approximately 85%.
• Defending Profitability: The company has successfully defended its average selling price (ASP) by diversifying its portfolio, expanding the share of server semiconductors away from a heavy reliance on mobile application processors (APs).

These factors act as the primary catalyst for the foundry division to break its long cycle of deficits and transition to an annual operating profit. This shift contributes to mitigating the volatility of the company's overall operating profit, which has historically been heavily skewed toward the memory division.

Increase in Free Cash Flow (FCF) and the Possibility of a Special Dividend

With the cessation of profitability erosion in the foundry division, Samsung Electronics' capacity to generate free cash flow at the corporate level has significantly strengthened. This is the result of adding foundry profits to the robust margins of high-value memory products such as HBM (High Bandwidth Memory) and DDR5. The market is currently focused on the three-year shareholder return policy effective from 2024 to 2026. This policy operates on the principle of returning 50% of the free cash flow generated over the three years to shareholders.

Any remaining funds after the payment of regular dividends are slated to be returned through special dividends or share buybacks and cancellations following the financial closing of 2026. According to consensus estimates from market research firms, the remaining funds at the end of 2026 are projected to reach between 10 trillion and 12 trillion KRW. This suggests the possibility of robust shareholder return measures, comparable to the special dividend of 1,578 KRW per share executed at the end of 2020.

Foreign Inflows and Mid-to-Long-Term Market Observation Points

The improvement in foundry performance and expectations for shareholder returns are the primary reasons for the recent influx of foreign capital into Samsung Electronics, despite the increased volatility in the domestic stock market. Amidst macroeconomic uncertainties, such as rising US Treasury yields, large-cap stocks with definitive cash flows and shareholder-friendly policies are perceived as relatively safe allocations.

Looking ahead, market attention will focus on the preliminary third-quarter earnings announcement in early October and the board of directors' decisions around the ex-dividend date at year-end. The magnitude of the quarterly profit in the foundry division and any adjustments to capital expenditure guidance will be the key variables determining the final scale of the special dividend.