The Motley Fool

3 Reasons Why Investors Might Want to Consider Investing in DBS Group Holdings Ltd

DBS Group Holdings Ltd (SGX: D05), or DBS for short, is one of the three major banks based in Singapore.

DBS shares are currently out of favour among investors. At the current price of S$24.25 (at the time of writing), the bank’s share price is down by 22% from an intraday peak of S$31.28 seen in May this year.

Despite the decline in DBS’s share price, there are many reasons why the bank may be a good investment for investors. Here, I will share three reasons why investors might want to consider investing in the bank now.

Good track record of profitability

Investors make money from stock investment in two ways — through an increase in share price and from dividends received from the company. Both factors, in turn, are driven by how well a company can sustain and grow its earnings in the long run.

A company that has a proven track record has a higher probability of sustaining its profitability in the future, which in turn, will result in a higher share price and/or dividend payments.

I look out for either stable or growing earnings over a period of at least five years.

As for DBS, the company has a positive track record of growth over the past five years. During that period, net profit (excluding one-off items) has grown by 26% from S$3.5 billion in 2013 to S$4.4 billion in 2017. This gives a compound annual growth rate of 6% during the time frame.

Positive quarterly earning update

Not only does DBS have a stable track record of performance in the last five years, it also delivered a strong performance in its latest earnings update for the second quarter ended 30 June 2018.

Here are some numbers: Total income grew by 10% from a year ago to S$3.20 billion. Net interest income (income from loans) rose 18% year-on-year to S$2.22 billion, driven by improvement in net interest margin and loan volume growth. Similarly, net fee income increased 11% to S$ 706 million, led by growth in wealth management and cards. As a result, net profit jumped 20% to S$1.37 billion.

Also, DBS declared an interim dividend per share of 60 cents, up 82% from the 33 cents declared for the first half of 2017.

Dividend track record

Another key criteria that investors look for when investing in a company is the track record of dividend payments. The key here is to look for stable, or even better, increasing dividend payouts over the years.

In the case of DBS, it has done just that.

In the last five years, it has grown its dividend per share from S$0.58 in 2013 to S$1.43 in 2017 (including the S$0.50 special dividend). In other words, its dividend was up by 147% or 60% (excluding special dividend) during the period.

The growth in dividend payment was even higher than the increase in profitability during same time frame, as mentioned earlier.

Going forward, I think that DBS will continue to pay out good dividends as long as it can sustain its profitability.

A Foolish conclusion

In all, I believe DBS should make a good investment over the long run since it will probably be able to sustain its profitability, and subsequently, its dividend payment in the future. The track records that it has shown in growing its earnings and dividends give me that confidence.

Worried about the overall state of the market? Do you know the 1 thing you should never do in the stock market? The Motley Fool Singapore’s new e-book lays out a plan to handle market crashes, details the greatest advantage you have as an investor, and looks at decades worth of market data to bring you the smartest insights on investing. You can download the full e-book FREE of charge—Simply click here now to claim your copy

[Editor's note: The article has been corrected to say that the intraday share price peak happened in May 2018 instead of April 2018.]

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. Motley Fool has recommendations for DBS Group Holdings Ltd.