Right now, Singapore’s three major bank shares – DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation Limited (SGX: O39), and United Overseas Bank Ltd (SGX: U11) – have pretty attractive dividend yields. According to data from S&P Global Market Intelligence, DBS, OCBC, and UOB currently have dividend yields of 4.9%, 3.8%, and 4.0%, respectively.
I thought it’ll be interesting to find out which of the three banks is the better dividend investment. There is no easy answer, since we can’t be certain about the future. But, we can still get some useful insights by studying the dividend track record of the banks, since their past actions can help us form some expectations for what lies ahead.
In the last five years from 2013 to 2017, DBS Group grew its dividend by 147% from S$0.58 per share to S$1.43 per share. If we exclude the special dividend of S$0.50 per share in 2017, DBS Group’s dividend would still be up by a commendable 60% in total. Meanwhile, OCBC had hiked its dividend by 9% from S$0.34 per share to S$0.37 per share. UOB’s performance comes in between the previous two banks; its dividend had grown by 33% in total from S$0.75 per share to S$1.00 per share. There were special dividends of S$0.05 and S$0.20 in 2013 and 2017, respectively, for UOB – if the special dividends are excluded, the growth in the bank’s dividend would be 14%.
Another useful metric to look at would be the banks’ payout ratios. The payout ratio measures a company’s dividend as a percentage of its earnings, and in general, the lower the ratio is, the more protection there is for the company’s dividend. In 2017, DBS, OCBC, and UOB had payout ratios (including each bank’s special dividends) of 85%, 38%, and 50%, respectively. These all look like reasonable payout ratios to me.
The Foolish conclusion
In sum, all three banks managed to grow their dividends over the past five years. But, DBS Group posted the highest dividend growth rate. It’s worth noting too that all three banks have dividends that look well-protected, given their reasonable payout ratios.
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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 contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommendations on DBS Group Holdings, Oversea-Chinese Banking Corporation, and United Overseas Bank.