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Which Singapore-Listed Bank Is the Best Dividend Share?

Banks in Singapore have a marvellous track record of paying out dividends each year.

Even during the Great Financial Crisis in 2008/2009, when many financial institutions had to be bailed out, the three major banks in Singapore still managed to pay out dividends to shareholders. Their consistency and reliability make them great dividend stocks to own.

With that, here’s a quick comparison on which bank could make the best income investment.

Dividend yield

The dividend yield is a function of the amount of dividends a shareholder can collect against the price of the stock.

The table below outlines the current dividend yield of DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corp Limited (SGX: O39) and United Overseas Bank Ltd (SGX: U11), as of 8 October 2018.

Source: Author’s computation of data from earnings results

All three banks spot attractive yields at the moment. However, DBS, with a yield of 4.6%, has the best dividend yield. Its yield is 0.8 percentage points above second-placed United Overseas Bank.

Payout ratio

The dividend yield may be the most apparent thing that income investors look at, but the sustainability of the dividend is equally important. This is where the dividend payout ratio comes into play.

The dividend payout ratio is a comparison of the earnings against the dividends paid out. Ideally, the dividend payout ratio should be below one, which suggests that the company is still retaining a percentage of its profits for growth and working capital requirements.

Source: Author’s computation of data from earnings results

All three banks have a low and sustainable payout ratio. OCBC has the lowest payout ratio at 36% and has the largest margin to increase its payout.

The Foolish bottom line

The three banks have attractive dividend yields with sustainable payout ratios. However, OCBC has the lowest payout ratio and has the largest room for growth. If it decides to increase its payout ratio to DBS’ level, its dividend yield would increase to 5.4%, the highest among the three banks.

That said, it remains to be seen how OCBC’s management will make use of its excess earnings. Income investors will also need to look at other factors such as earnings growth, business outlook and management ability to determine if the bank can continue to deliver dividend growth in the coming years.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Oversea-Chinese Banking Corp Limited, DBS Group Holdings Ltd and United Overseas Bank Ltd. The Motley Fool Singapore contributor Jeremy Chia owns shares in DBS Group Holdings Ltd.