One of the sectors that is out of favour right now is banking. After peaking in April this year, the local banks have seen their share prices down by more than 10% from their respective peaks. The decline in the banks’ stocks price might draw some interest from investors. Given their reputation for longer-term stability and income, it might be worth exploring which local bank is the better dividend stock right now.
Clearly, there is no quick answer to the above question. Still, we will compare the two biggest local banks (by market capitalisation), namely DBS Group Holdings Ltd (SGX: D05) and Oversea-Chinese Banking Corporation Limited (SGX: O39), or OCBC. The idea is to get a quick overview of which bank might be a better buy now for dividend investors. Here, we will pit the duo against each other in two simple tests.
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Dividend track record
The first test is to compare the dividend track record of the banks for the last 10 years. This will give us some hint as to what we should expect in the future. Let’s begin with DBS. In the last decade, DBS has grown its dividend per share from S$0.65 in 2008 to S$1.20 in 2018. In other words, its dividend was up by 85% during the period.
And now for OCBC. It has grown its dividend per share from S$0.28 in 2008 to S$ 0.43 in 2018. In other words, its dividend was up by 54% during the period. As we can see, both banks have done reasonably well by sustaining, as well as growing their dividends over the decade. Among the two, DBS did better in growing its dividends during that period.
Financial track record
However, dividend growth is not possible unless the banks have also grown their underlying profitability over time. Thus, dividend investors will need to assess the banks’ financial track records, say for the last decade, in order to gain confidence in the sustainability of the banks’ dividends in future (especially given the growth trajectory).
With that, let’s look at some numbers for both banks. Again, we’ll start with DBS. From 2008 to 2018, DBS’s total income grew from S$6.0 billion in 2008 to S$13.2 billion in 2018. Similarly, net profit attributable to shareholders grew from S$1.9 billion in 2008 to S$5.6 billion in 2018. The former was up by 120% while the latter was up by 194% during that period.
But what about OCBC? During that period, its total income grew from S$4.4 billion in 2008 to S$9.7 billion in 2018. Similarly, net profit attributable to shareholders grew from S$1.7 billion in 2008 to S$4.5 billion in 2018. The former was up by 120% while the latter was up by 164% during that period.
Again, both banks have done well in growing their business in the last decade. Still, DBS did better in growing its underlying profitability.
From both of the above, we can say that DBS and OCBC have demonstrated stable financial and dividend track records, which render both of them worthy of dividend investors’ consideration.
Yet, if investors have to choose one, then DBS might come out slightly ahead due to its stronger growth over the last decade.
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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. Motley Fool has recommendations for DBS Group Holdings Ltd and Oversea-Chinese Banking Corporation Limited.