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1 Blue-Chip That Has Beaten The Market By 4X

Singapore’s Straits Times Index (SGX: ^STI) plays host to 30 of the largest companies in the Lion City. But one company has beaten the market’s returns by over four times.

DBS Group Holdings Ltd (SGX: D05) delivered a solid 45% in total returns over the last three years. In comparison, the STI posted total returns of just 10.3% for the same period. Let’s take a closer look at how the local bank performed during this period.

The Market Beater

DBS Group is Singapore’s largest bank, and one of Asia’s leading financial services groups. At its current share price, the bank offers a meaty yield of 4.8%, and holds a market capitalisation close to S$64 billion. The table below shows how the bank’s net interest income, non-interest income, and total revenue performed over the last three years.

Source: S&P Global Market Intelligence; All figures in S$ millions except for EPS

From the table above, we can see that its net interest income has been increasing at a reasonable pace. Between 2015 and 2017, the bank’s loan book grew from S$283 billion to S$323 billion. Meanwhile, the bank’s net interest margin decreased slightly from 1.77% to 1.75%. DBS Group’s non-interest income, which comprises of income derived from transaction services, wealth management, cards and investment banking, saw a similar upward trend.

There were higher provisions for loan losses over the period above, but the increase was covered by growth. In all, DBS Group managed to grow its total revenue between 2015 and 2017.

However, DBS Group recorded a lower earnings per share (EPS) for the three-year period above. The decline can be traced to increases in manpower costs, and other costs.

Financial Check-Up

Between 2015 and 2017, DBS Group’s total customer deposits has seen a steady increase from S$320.1 billion to S$373.6 billion. The bank’s loan-to-deposit ratio also improved over the same time period going from 88.5% to 86.5%. Both the metrics are important to note as the bank makes money from lending activities. Having a growing deposit base enables a bank to make more loans to customers.

At the same time, we should also be aware that loans come with a risk of default. As such, banks need to achieve a fine balance between growing its loan book without taking on too much risk. The amount of risk the bank takes is reflected in its loan-to-deposit ratio.

In the case of DBS Group, we can see the ratio has dipped slightly, suggesting a more conservative stance.

Dividends, dividends, dividends

Finally, let’s take a look at DBS Group’s dividend over the past three years.

Source: S&P Global Market Intelligence

DBS Group increased its dividend by 55% in 2017, paying out S$0.93 for the year. At the same time, the bank also guided toward a full year dividend of S$1.20 for 2018. Despite the sharp increase in dividends, the bank’s payout ratio remains reasonable. Estimates put DBS Group’s payout ratio to be under 50% for 2018, which bodes well for investors looking for income.

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The Motley Fool Singapore contributor Esjay contributed to this article. Esjay does not own any of the shares mentioned. 

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore has recommended shares of DBS Group. Motley Fool Singapore writer Chin Hui Leong does not own any of the shares mentioned.