3 Charts Investors Must See About United Overseas Bank Ltd’s Dividend

There are three local banks listed in Singapore’s stock market. Based on their current share prices, United Overseas Bank Ltd (SGX: U11) has the highest dividend yield when compared to its peers, DBS Group Holdings Ltd (SGX: D05) and Oversea-Chinese Banking Corp Limited (SGX: O39).

DBS, OCBC, UOB, dividend yield table
Source: S&P Global Market Intelligence

Here’re three charts investors may want to see about UOB’s dividends.

The first is Chart 1, which shows the bank’s track record with paying a dividend from 2005 to 2015. There are a few things to like about it. First, UOB has managed to pay a dividend consistently over the past decade under study. Second, the bank’s total dividend has actually stayed within a relatively tight band of between S$0.60 and S$0.90 per share.

Chart 1 - UOB's total dividend (ordinary + special dividend) from 2005 to 2015
Source: S&P Global Market Intelligence

Chart 2 is the next chart I’m interested in and it tracks UOB’s pay-out ratio for the same timeframe as Chart 1.

The pay-out ratio measures the bank’s total dividend as a percentage of its profit and it’s a useful indicator of how much room for error the bank has to maintain or grow its dividend in the future. In general, the lower the ratio is, the more buffer there is for a bank to maintain or even grow its dividend in the event its business faces negative developments.

Chart 2 - UOB's pay-out ratio (total dividends as percentage of earnings per share) from 2005 to 2015
Source: S&P Global Market Intelligence

As Chart 2 shows, UOB’s pay-out ratio has declined slightly over the years, from 54% in 2005 to 46 % in 2015. The 46% pay-out ratio in 2015 also suggests the presence of a healthy gap between the bank’s earnings and dividend in that year.

The last chart, Chart 3, looks at UOB’s assets-to-shareholder’s equity ratio (let’s call this the leverage ratio) over the last decade. Dividends do not come with guarantees and a bank with a weak balance sheet (one with a high leverage ratio) runs the risk of having to cut or eliminate its dividends when the economy turns south.

Chart 3 - UOB's leverage ratio from 2005 to 2015
Source: S&P Global Market Intelligence

What Chart 3 shows is comforting. Over the past 10 years, UOB’s leverage ratio has increased only slightly from 10.3 in 2005 to 11.1 in 2015. More important, the bank’s leverage ratio at end-2015 is within a healthy range.

A Fool’s take

To sum up what we’ve seen in the three charts here, UOB has a decent track record with paying a dividend, it appears to have some room for error in maintaining its payout, and it does not have a wobbly balance sheet.

That said, the three charts shouldn’t be taken to be the final word on UOB’s investing merits. Further research is required before any investing conclusion can be reached.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any companies mentioned.