3 Charts Investors Must See About Oversea-Chinese Banking Corp Limited’s Dividend

Source: Fool Editorial

Local banking giant Oversea-Chinese Banking Corp Limited (SGX: O39) is one of the blue chip stocks in Singapore that has a market-beating dividend yield.

To the point, the bank has a yield of 3.96% at its current share price of S$9.09 thanks to its dividend of S$0.36 per share in 2015. Meanwhile, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund that tracks Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI) – had a yield of ‘just’ 3.45% as of yesterday.

Given OCBC’s higher-than-average yield, the individual investor might wonder: Would the bank be a good income stock? Let’s take a look at three charts that can give us more insight about the bank’s dividend.

The first chart is Chart 1. It plots the history of OCBC’s ordinary dividends per share from 2005 to 2015 (I’m using ordinary dividends because 2005 was the only year in that timeframe in which the bank had dispensed a special dividend).

Chart 1 - OCBC's ordinary dividend per share from 2005 to 2015
Source: S&P Global Market Intelligence

So, Chart 1 shows some likeable characteristics about OCBC’s dividend. First is the bank’s consistency – OCBC has managed to pay an annual dividend in each year over the time period under study. Second is the trajectory of those dividends – OCBC has managed to either maintain or grow its dividend over the past decade. In fact, the bank’s payout of S$0.36 per share in 2015 is nearly double the S$0.184 per share seen in 2005.

Chart 2 is the next chart we want to look at. It illustrates OCBC’s payout ratio for the same years as Chart 1. The payout ratio measures the bank’s dividend as a percentage of its profit. It gives an indication of how much room for error a company has to maintain or grow its dividend in the event its future profits fall as a result of the natural vicissitudes of the business environment.

Chart 2 - OCBC's payout ratio (ordinary dividend as percentage of earnings per share) from 2005 to 2015
Source: S&P Global Market Intelligence

OCBC has maintained its payout ratio at healthy levels of between 29.2% and 51.3% over the last decade. Meanwhile, the payout ratio of 37.8% seen in 2015 suggests that the bank has a decent margin of safety to protect its dividends should its business falter over the short-term.

The last chart we’re focusing on is Chart 3, which shows how OCBC’s assets-to-shareholder’s equity ratio (let’s call this the leverage ratio) has changed from 2005 to 2015.

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

It’s worth noting that dividends don’t come with guarantees. If a bank has a weak balance sheet (characterised by a high leverage ratio), its dividends are at risk of being cut or eliminated should there be a financial industry downturn.

What Chart 3 shows is comforting. OCBC’s leverage ratio has never exceeded 15 in the timeframe we’re looking at. Moreover, the bank’s 11.6 leverage ratio at end-2015 also points to a balance sheet that appears to be in good shape.

A Fool’s take

In summary, OCBC is a bank that has a good track record of growing its dividends and a healthy buffer between its earnings and dividend. It’s also a bank with a solid balance sheet.

That said, the conclusions derived from Charts 1, 2 and 3 should not be taken as the final word on the investing merits of OCBC. Deeper research is needed before any investing decision can be made.

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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.