3 Charts Investors Must See About DBS Group Holdings Ltd’s Dividend

DBS Group Holdings Ltd (SGX: D05) is one of the three local banking stocks in Singapore. At the moment, the bank has a dividend yield of 3.8% thanks to its dividend of S$0.60 per share in 2015 and its current stock price of S$15.81.

That’s a yield that’s higher than the 3.40% offered by the SPDR STI ETF (SGX: ES3) as of 22 April 2016. The SPDR STI ETF is an exchange-traded fund that tracks Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI).

Here are three charts investors may want to see about DBS’s dividend.

Chart 1 is the first chart we’re visiting and it illustrates DBS’s dividend track record from 2005 to 2015. There are a number of things to like about the chart. First, DBS has been consistently paying an annual dividend over the past decade. Second, the bank has maintained its dividend within a relatively tight band of S$0.56 to S$0.71 if special dividends are excluded (2006 was the only year when a special dividend was given; the amount was S$0.05 per share).

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

The next chart to look at is Chart 2, which shows DBS’s payout ratio over the same period as Chart 1.

The payout ratio is given as a stock’s dividend as a percentage of its profit and it’s a useful indicator of how much buffer there is for a bank to maintain or grow its dividend in the future while taking into account the possible occurrence of untoward business developments from time to time. Generally speaking, the lower the ratio is, the more room for error a stock has.

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

What Chart 2 shows is comforting. DBS’s payout ratio had declined from 107% in 2005 to just 34% in 2015. The 34% figure also means that there appears to be a nice gap between the bank’s dividend and earnings.

Lastly, we have Chart 3, which tracks DBS’s assets-to-shareholders’ equity ratio (let’s call this the leverage ratio) over the past decade. Investors should note that dividends do not come with guarantees. A bank with a weak balance sheet (one with a high leverage ratio) runs the risk of having to reduce or completely remove its dividends when the business environment turns sour.

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

DBS has seen its leverage ratio climb slightly from 10.8 in 2005 to 11.3 in 2015. But, the leverage ratio of 11.3 still looks to be a healthy number to me.

A Fool’s take

To sum up all three charts, DBS has had a fairly decent dividend track record, it has a healthy buffer between its earnings and dividend, and it has a balance sheet that does not look weak.

All that said, the three charts shouldn’t be taken as the final word on DBS’s investing merits. Further research is needed 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.