Taiwan Semiconductor Manufact-uring Co (TSMC, 台積電), the world's largest contract chipmaker, yesterday passed a major change in its dividend policy amid efforts by the nation's financial regulator to improve dividend distribution practices.
"The major reason behind the policy change is it will give TSMC more flexibility in planning future cash dividend distribution," spokesman Tseng Jih-hao (曾晉皓) said yesterday, adding that TSMC intended to give more cash dividends in the future.
The new policy will also prevent the company's total number of shares issued from swelling too fast, Tseng said.
TSMC shareholders yesterday gave the green light to management's proposal that future dividend distributions will preferably be made in cash. Under the new rule, the ratio for stock dividends shall not exceed half of total distributions.
The change received a positive response from analysts.
"The policy change will help enhance the health of TSMC's operation in the long run as shares will not increase at a unreasonably fast pace," said Mark Chen (陳智偉), an analyst with International Investment Trust Co Ltd (國際投信).
Taiwan's electronics manufacturers, chipmakers in particular, have tended to give stock dividends to engineers as incentives to secure top talent, Chen said.
In the past, the total number of shares of local high-tech companies could balloon by up to 5 percent annually due to hefty stock dividends to shareholders and employees, Chen said.
The expansion has resulted in a serious erosion of shareholders' earnings, he said.
To address the problem, Taiwan's stock regulator passed a new rule early this month banning money-losing companies from giving dividends to employees. The new law became effective immediately.
In addition, dividends will be capped at a ceiling of 50 percent of companies' earnings in the previous year.
Before the enactment, some electronics companies have distributed stock or cash dividends despite poor performance. This is unreasonable, Chen said.
Dividend outlays by Silicon Integrated Systems (SiS, 矽統科技), for example, cost the company NT$4.5 billion in 2002, when it posted a loss of NT$4.1 billion a year earlier, according to Polaris Securities Co (寶來證券).
To cope with the regulator's new rule, VIA Technologies Inc (威盛電子), a leading chipset maker that has a close partnership with TSMC, said in a press release that it would not give any dividends to its 1500 employees this year due to a loss of around NT$2 billion last year.
But, VIA's shareholders will receive NT$0.5 per share in stock dividends, as agreed at a shareholder's meeting in July, the release said.
"The government's new rule will help put local electronics companies' distorted dividend distribution mechanisms back on track, but it could also put pressure on poorly operating companies [when they try to] secure talented engineers," said Rex Liu (劉潤忠), an analyst with Polaris Securities.