DBS Group Holdings Ltd (SGX: D05) is one of the three major banks in Singapore. As of the time of writing, DBS shares are selling for S$24.65 apiece, down from its 2019 peak share price of S$28.40 seen on 29 April 2019.
With the steep fall in share price in less than two months, is it a good opportunity to pick up some shares in DBS? There isn’t a simple answer but we can make some smart (and educated) guesses from looking at a few things.
Net asset value growth
The net asset value (NAV) is the difference between a company’s assets and its liabilities. It also shows the company’s net worth. By looking at a bank’s net worth over the years, we can see how much the bank’s capital has grown. Over the long-term, a bank’s share price tends to rise in line with its capital growth.
DBS had a NAV per share of S$14.85 in 2014. The figure has grown consistently on a year-on-year basis to reach S$18.12 in 2018. Therefore, the bank’s net worth has climbed at a rate of 5.1% annually.
DBS has been a dream for dividend investors due to its increasing dividend payout. Its dividends have climbed by 19.9% annually, from S$0.58 per share in 2014 to S$1.20 per share in 2018.
DBS commented in its 2019 first-quarter earnings that its “policy of paying sustainable dividends that rise progressively with earnings remains unchanged.” The bank also made public that it would start paying shareholders quarterly dividends in order to provide them with a more regular income stream.
The following is a snapshot of DBS’s valuations from 2014 to 2018:
Source: DBS 2018 annual report
Over the past five years, DBS’s dividend yield (excluding special dividends) ranged from 3.3% to 4.6%, with an average of 3.9%. In terms of the price-to-earnings (PE) ratio, it was between 9.3 and 12.3, giving it an average PE ratio of 11.3. As for the price-to-book (PB) ratio, it fluctuated from 0.9 to 1.5, translating to an average of 1.2.
At the current share price of S$24.65, DBS has a dividend yield of 4.9%, a PE ratio of 11.2, and a PB ratio of 1.3.
The Foolish bottom line
DBS looks slightly undervalued with a higher dividend yield than average and a slightly below-average PE ratio. However, investors who are keen to invest in DBS shares have to be aware of the risks that the bank faces, including the US-China trade tensions. Those who worry about further escalation of political tensions could pace out their stock purchases to take advantage of any price falls. After all, DBS is a well-capitalised bank that should be able to grow for years to come.
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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 DBS Group Holdings Ltd. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.