What is the Difference Between Treasury Stock Cancellation and Dividends? Analyzing SK Hynix's 40 Trillion Won Plan
Even for the same shareholder return, the effects on EPS, cash, and share counts are entirely different.

On August 19, 2026, the board of directors of SK Hynix resolved to acquire approximately 40 trillion won worth of its own shares in the open market and cancel all of them. Reported as the largest treasury stock cancellation ever by a domestic listed company, the company also disclosed on the same day that it would raise its shareholder return target for the period from 2025 to 2027 from the previous range of 'within 50% of cumulative free cash flow (FCF)' to '50% or higher.' Immediately following the announcement, portals and securities communities were flooded with questions such as "Is cancellation better than dividends?" and "Why not just distribute the 40 trillion won directly?" To answer those questions, this article breaks down how three shareholder return methods—share buybacks, treasury share cancellation, and cash dividends—affect a company's cash, total number of shares, earnings per share (EPS), and shareholder taxes using the real-world cases of SK Hynix and KB Financial Group.

What is Shareholder Return and Why Is It Divided into Three Methods?

Shareholder return is a general term for the practice of returning a company's earned profits or accumulated cash to its shareholders. There are three main methods. First, cash dividends involve the company directly paying cash to individuals listed on the shareholder registry in proportion to their number of shares held. Second, a share buyback is when a company purchases its own shares in the market; while cash leaves the company vault just like a dividend, that cash flows exclusively to the shareholders who sold their shares. Third, treasury share cancellation is the act of legally eliminating these acquired shares to reduce the total number of issued shares itself. If a company only buys back shares without canceling them, those shares remain on the company's books as 'treasury stock' and can be sold back to the market at any time or used for other purposes. Cancellation, on the other hand, is irreversible. This distinction is the starting point for all the effects explained below.

The Actual Structure of SK Hynix's 40 Trillion Won Decision

According to regulatory filings and press reports, SK Hynix's latest decision is structured as follows. The intended acquisition amount is approximately 40.043 trillion won, which translates to about 24.07 million common shares based on the closing price of 1,662,000 won on August 18, the day before the board resolution. This represents approximately 3.3% of the total 730.49 million issued shares. Acquisitions are scheduled to take place through open-market purchases over a period of about three months starting August 20, with all acquired shares slated for complete cancellation upon completion. Explaining that its net cash stood at approximately 69 trillion won as of the end of the second quarter, the company stated that the background of the decision was its judgment that its intrinsic value is not fully reflected in the current stock price relative to its business competitiveness and cash-generating power. Specific subsequent return measures, such as expanded additional dividends or special dividends, are reportedly planned to be guided at the time of the third-quarter earnings announcement. Meanwhile, reports also surfaced that shareholders had expressed dissatisfaction over the fact that quarterly dividends had been maintained at 375 won per share despite record-high earnings. In other words, this decision is read as a choice to 'respond with cancellation first while leaving dividends untouched.'

First Difference: Where Does the Cash Go?

Dividends and share buybacks are alike in that cash leaves the company. However, the recipients of that cash differ. Dividends are paid without exception to all shareholders who continue to hold their shares. In a share buyback, only those who sell their shares during that period receive cash, while nothing enters the accounts of shareholders who hold onto theirs. Instead, remaining shareholders see an increase in their ownership percentage of the total issued shares following the cancellation. Simply dividing 40 trillion won by the current number of issued common shares (approximately 730.49 million) yields a simple arithmetic calculation of about 55,000 won per share. However, this is an arithmetic example that simplifies the number of dividend-eligible shares on the record date, the presence of preferred shares, and pre-tax/post-tax distinctions; the actual dividend per share paid will vary depending on the share count on the dividend record date and the company's dividend design. When the same 40 trillion won is used for share buybacks and cancellation, cash is paid exclusively to shareholders who sold their shares to the company, whereas continuous holders gain an increase in ownership percentage. However, a higher ownership percentage does not automatically increase equity value; if the purchase price was lower than the company's intrinsic value, it is highly likely to have a positive impact on per-share value as well. Which option is more advantageous depends on the shareholder's circumstances. It is commonly explained that retired investors in need of cash flow tend to prefer dividends, while investors who premise their strategy on long-term holding tend to favor cancellation.

Second Difference: How Do the Number of Issued Shares and EPS Move?

Earnings per share, or EPS, is net income divided by the number of shares. As a rule, cash dividends do not reduce the number of issued shares, so the payout itself does not change the denominator of EPS. Conversely, when a company acquires its own shares, those shares are excluded from the number of circulating shares used to calculate basic earnings per share. Assuming that net income and incidental profit-and-loss effects associated with financing the buyback (such as a decrease in interest income, or an increase in interest expense if financed through borrowings) are not significant, the weighted average number of circulating shares decreases starting from the buyback period, causing EPS to rise. Looking at simplified numbers, a company with a net income of 100 and 100 shares has an EPS of 1. If 3.3 shares are bought back and eliminated, the EPS becomes 100 divided by 96.7, which is approximately 1.034—an increase of about 3.4% (specifically, about 3.41%). The ratio being acquired by SK Hynix this time (approximately 3.3% of issued shares) corresponds to the scale of this example. Here, the difference between buybacks and cancellation becomes critical. The EPS improvement effect itself appears as early as the buyback stage, and what cancellation does is make that effect permanent. Treasury shares that are not canceled can later be re-released to the market for employee compensation, the issuance of exchangeable bonds, or strategic alliance share swaps, at which point the number of circulating shares increases again, partially or fully reversing the EPS improvement effect. This is why investors react more strongly to 'cancellation' than to 'buybacks.' The effect on book value per share (BPS) can move in opposite directions. Because cancellation reduces both equity and the share count, if the purchase price is higher than the BPS, the BPS actually decreases; if the purchase price is lower than the BPS, the BPS increases. This point will be revisited in the case of KB Financial Group.

Third Difference: Who Pays Taxes and When?

When cash dividends are received, dividend income tax is withheld as a rule. The basic tax rate is 15.4% (income tax of 14% plus local income tax), and if combined interest and dividend financial income exceeds 20 million won per year, it is aggregated into comprehensive income, applying progressive tax rates up to 45% (49.5% including local income tax). However, for dividend income meeting the requirements of the tax special taxation provisions for high-dividend companies among dividends paid on or after January 1, 2026, separate taxation can be applied at a tax rate between 14% and 30% without being aggregated with other income in the following year's comprehensive income tax filing. This tax rate is separate from local income tax and does not apply automatically to all dividends of all listed companies, but is limited to dividends of high-dividend companies that meet requirements such as payout propensity. Because specific eligible targets and calculation methods may vary according to enforcement decrees, investors must verify them through the National Tax Service or tax experts. In the case of share buybacks and cancellations, even if the company executes them, cash income generally does not arise immediately for shareholders who continue to hold their shares. However, shareholders who dispose of their shares in response to a tender offer or open-market sale may be subject to capital gains taxation depending on their transaction type and holding status, and general retail investors in domestic listed stocks are often exempt from taxation on open-market capital gains under the current system. Even if the same 40 trillion won goes out as dividends, substantial taxes are immediately incurred at the stage of continuous holders, whereas if used for cancellation, such immediate taxation is absent or often deferred until the shareholder chooses the timing of the sale themselves. The ability to postpone the timing of taxation compared to cash dividends can serve as an incentive for some long-term holders or high-tax-bracket investors to favor cancellation.

Another Design Demonstrated by KB Financial Group's 1.02 Trillion Won Cancellation

Although smaller in scale than SK Hynix, KB Financial Group offers a structural case worth noting. KB Financial Group disclosed on April 30, 2025, that it would cancel 12.06 million treasury shares on May 15 of the same year. This combined 5.66 million shares purchased in the second half of 2024 (acquisition cost of about 500.0 billion won) and 6.40 million shares purchased since February 2025 (about 520.0 billion won), totaling approximately 1.02 trillion won based on acquisition cost, which was reported as the largest in the company's history at the time. What is notable is how KB Financial combined this cancellation with its dividend policy. According to reports, KB Financial's value-up framework is structured to determine the total annual dividend amount first and divide it evenly across quarters, meaning that as the share count decreases through treasury stock cancellation, fewer shares share the same total dividend amount, automatically driving up the dividend per share. In other words, cancellation and dividends are not separate; rather, one is designed as a mechanism to pull up the other. In addition, financial holding companies must maintain a Common Equity Tier 1 (CET1) ratio above a certain level due to banking regulations, and KB Financial operates a policy of determining the scale of shareholder returns in linkage with its CET1 ratio. The company explained that capital exceeding a year-end CET1 ratio of 13% was reflected in annual cash dividends and first-quarter share buybacks and cancellations. Given that shareholder returns for financial institutions are determined not by 'how much cash is left' but by 'how much regulatory capital headroom there is,' its starting point differs from that of semiconductor manufacturer SK Hynix.

The Prerequisites Changed by the 2026 Commercial Act Amendment

There is one more background detail that must not be missed when reading this SK Hynix decision. The amended Commercial Act, passed by the plenary session of the National Assembly on February 25, 2026, and promulgated and enforced on March 6, mandated that when a company acquires its own shares, it must in principle cancel them within one year from the acquisition date. Existing treasury shares held prior to enforcement also become subject to cancellation following a grace period, and holding or disposal is permitted only in cases falling under exceptions prescribed by law, such as granting employee stock options, and after drawing up a treasury share holding and disposal plan and obtaining shareholder meeting approval. In the past, Korean companies frequently bought back treasury shares without canceling them, holding onto them to defend management control or utilize them in equity transactions among affiliates, which served as the basis for the criticism that 'share buybacks by Korean companies are not genuine shareholder returns.' The amended Commercial Act has essentially closed that option. Therefore, a domestic listed company buying back treasury shares after 2026 must be viewed as practically contingent on cancellation, and SK Hynix's explicit statement of 'acquiring and then canceling all' from the outset can be interpreted as aligning with this regulatory environment.

Cancellation Is Not Always the Right Answer

It would be problematic if this led to the conclusion that treasury stock cancellation is superior to dividends. Cancellation benefits remaining shareholders when the purchase price is lower than the company's intrinsic value, but buying high and canceling expensive shares results in an inefficient use of company cash. Dividends offer high predictability in that they provide fixed cash to all shareholders regardless of the stock price level. Furthermore, while steady buying demand forms in the market during the months a share buyback is underway, this does not guarantee an immediate rise in stock price. Indeed, reports indicated that on the trading day following SK Hynix's announcement, its stock price dropped sharply in tandem with a broader semiconductor sector correction. No matter how large the shareholder return scale is, the fact that industry conditions and earnings forecasts dictate stock prices remains unchanged. Lastly, from the company's perspective, 40 trillion won was money that could have been used for next-generation process investments or mergers and acquisitions. Investors must ask both 'how much is being returned' and 'what will be done with the cash remaining after the return.'

Three Things Investors Must Check in Regulatory Disclosures

First is whether and when shares will be canceled following acquisition. Confirming whether 'planned cancellation' is specified in the disclosure and when the scheduled cancellation date is allows one to judge whether the buyback effect is permanent. Second is the funding source. Looking at the return ratio relative to free cash flow, the net cash scale, and future investment plans together makes it possible to gauge whether the returns are sustainable. Third is the connection with dividend policy. If it is a structure like KB Financial's where the total dividend is fixed, cancellation boosts dividends per share; however, if it is a structure where the dividend per share is fixed, cancellation acts to reduce the company's dividend burden. What dividend expansion plan SK Hynix unveils in its third-quarter earnings announcement will ultimately determine the significance of this 40 trillion won decision. Treasury stock cancellation and dividends are not competing relationships, but tools that deliver value to different shareholders in different ways; a good shareholder return policy comes from combining the two tools to match the company's cash-generating power and stock price level.