Singapore prides itself on being a financial hub with access to high quality banking and finance companies and talent within the space. Our local banks – DBS (SGX: D05); UOB (SGX: U11); and OCBC (SGX: O39) – are often cited as among the best, safest, strongest, or most innovative banks in the world as well.
These banks are also listed on the Singapore Exchange (SGX) and comprise close to 40% of the Straits Times Index (STI) – our local benchmark index. This makes it attractive to invest in such a strong company, especially when they also provide relatively good and stable dividends to investors.
However, Singapore’s banking sector is also important to all other industries – providing vital payment, loans, investments, and other services to ensure the local economy continues to thrive. As such, the Monetary Authority of Singapore (MAS) has called on banks to cap their total dividends per share in 2020 to 60% of that in 2019 and to also consider the option of scrip dividends rather than cash.
That’s why this week’s edition of 4 Stocks This Week will be slightly different. For the first time, we will feature only 3 stocks instead of 4.
DBS (SGX: D05)
DBS is the largest bank in Singapore and also Southeast Asia, with operations in 18 markets including Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Myanmar, Philippines, Taiwan, Thailand, UEA, UK, USA and Vietnam.
Currently, DBS is trading at $21.55. This gives DBS a market capitalisation of close to $55.3 billion. In the year-to-date 2020, DBS share price has dipped 16.7% from $25.88 at the end of 2019.
Based on its share price today, DBS is trading at a dividend yield of about 5.7%. However, as mentioned above, local banks will not be paying out the same dividends as they did in 2019 even if they are equally profitable (which may be an unlikely scenario itself).
In 2019, it paid out $1.23 in dividends. In the best-case scenario, DBS will likely be paying $0.738 in 2020 – which will give it a dividend yield closer to 3.4%.
In line with MAS’ guidelines, DBS declared an interim dividend of $0.18 for its first half of 2020. This is exactly 60% of its first half dividends – of $0.30 – in 2019. This means we may be able to expect 3Q and final dividend to be $0.18 and $0.198.
Despite the lower dividends, DBS’ total income increased 7% in the first half of 2020, compared to 2019. However, net profit declined 26%, mainly due to allowances for credit and other losses.
UOB (SGX: U11)
UOB operates regionally and in major global financial centres including Australia, Brunei, Canada, China, France, Hong Kong, India, Indonesia, japan, Malaysia, Myanmar, Philippines, South Korea, Taiwan, Thailand, UK, USA and Vietnam.
UOB is currently trading at $20.80, giving it a market capitalisation of $33.8 billion. This is a drop of close to 21.2% compared to the end of 2019 – when it was trading at $26.41.
Based on today’s share price, UOB’s dividend yield would be about 4.7%. Again, as we know its 2020 dividends will be tapered by at least 40%, this is not going to be the case.
In 2019, UOB paid out a total of $1.30 in dividends. Applying MAS’ guideline to pay out 60% of this figure, UOB will likely pay out $0.78 in dividends in 2020. This will mean it is currently trading at a dividend yield of 3.8%.
In UOB’s latest first half results, it posted a dividend of $0.39, which is slightly more than what the MAS’ guideline would have dictated. In the same period in 2019, it paid out $0.55 – applying the 40% discount would have meant current dividend would fall to $0.33 instead. Nevertheless, UOB still has the rest of its financial year of 2020 to taper its dividends to 60% of 2019’s levels. Going forward, UOB will likely pay out another $0.39 for 2020 – probably smoothing out dividend cuts over two periods.
UOB’s total income for the first half was just 6% lower than the same period last year. Its net profit was 30% lower comparatively, mainly due to higher allowances for credit and other losses.
OCBC (SGX: O39)
No list of Singapore banks is complete without discussing all 3 local banks. Of course, OCBC also has a strong regional and global presence, in Australia, China, Hong Kong, Indonesia, Japan, Myanmar, South Korea, Taiwan, Thailand, UK, USA and Vietnam.
OCBC is now trading at $8.81, 19.8% below its share price at the end of 2019 – of $10.98. Based on its current share price, OCBC has a market capitalisation of $39.4 billion.
This also means OCBC is currently trading at a would-be dividend yield of 5.0%. Of course, we know that OCBC will likely only end up paying 60% of its 2019 dividends, providing investors a lower dividend yield.
OCBC paid out a total of $0.53 in dividends in 2019. This means we can expect OCBC to pay about $0.318 in dividends for its financial year 2020.
Sticking to MAS’ guidelines, OCBC reduced its interim dividends in its first half to $0.159. Again, this is slightly higher than the 60% of its interim dividend of $0.25 in 2019 – 60% of that would be $0.15.
From the looks of it, rather than paying a slightly higher final dividend during its end of financial year announcement, OCBC will smooth out dividends with another $0.159 payout.
This means OCBC is currently trading at a dividend yield of 3.6%.
In OCBC’s first half announcement, its total income remained stable. Similar to DBS and UOB, OCBC’s net profit dropped by 42% mainly due to allowances set aside.
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Special Mentions: iFast Corporation (SGX: AIY); Hong Leong Finance (SGX: S41); and Singapura Finance (SGX: S23)
No 4 Stocks This Week list is also complete without a 4th “stock”. Because there are only 3 main local banks in Singapore or listed on the SGX, we came up with a list of special mentions in the financial space.
For good or bad, these firms are not “encouraged” to withhold cash distributions to its shareholders. At the same time, this is because they are not banks.
iFast Corporation is in the process of applying for a digital bank licence in Singapore, along with a consortium comprised of China-based Yillion Group – which operates one of the four digital banks in China – and Hande Group – which is founded by the former president of China’s first digital bank, Webank.
With a market capitalisation of $879.5 million, iFast currently trades $3.23 or 210.6 times higher than its share price at the end of 2019 – when it was trading at $1.04. While it is currently trading at a dividend yield of 1.0%, its latest Q3 results has seen its profit soaring more than 150% – which may positively impact its dividends.
With a market capitalisation of $1.0 billion, Hong Leong Finance claims to be Singapore’s largest finance company. While Hong Leong also initially expressed interest to apply for a digital bank licence, there is no information available on its submission. Today, Hong Leong Finance trades at $2.29, or 14.2% lower than at the end of 2019. Nevertheless, it is currently trading at a dividend yield of 5.9%.
Singapura Finance is another finance company in Singapore. Along with MatchMove, a fintech company in Singapore, Singapura Finance has applied for a digital full bank licence. Singapura Finance has a market capitalisation of $125.4 million – trading at $0.79 or 10.7% lower than at the end of 2019. At its current share price, Singapura Finance is trading at a dividend yield of 2.5%. In its latest half yearly result announcement, Singapura Finance reported 14.1% lower income. Its profit was 65.3% lower, mainly due to allowances as well.
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4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.