Singapore’s largest bank, DBS Group Holdings Ltd (SGX: D05), currently sports a juicy 5% dividend yield. DBS has a history of not only paying regular dividends but also raising it. However, can the dividends be sustained? Let’s find out.
A stock’s dividend sustainability depends very much on its earnings. A company that is unable to grow its earnings per share will naturally not be able to grow its dividends.
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Thankfully for DBS shareholders, the bank has a remarkable record of growing its earnings. From 2006 to 2018, DBS’ earnings per share has grown from S$1.28 to S$2.01. Meanwhile, its book value per share has also grown from S$9.79 to S$17.85 during the same period.
The fact that this period included the Great Financial Crisis makes these numbers all the more impressive.
Even though the unstable geopolitical outlook and the ongoing trade war may dampen near-term market confidence, DBS has shown it will likely come out of it stronger than before.
Dividend backed by robust earnings
In addition to its earnings growth, DBS’ current dividend is also well covered by its earnings. In the most recent quarter, DBS recorded a 64.5 cents earnings per share. This is more than two times its 30 cents dividend per share it paid out for the period.
While the dividend payout ratio is slightly higher than the two other major Singapore banks, it still remains at a very sustainable 46.5%.
Balance sheet strength
Another thing to consider for a bank is its balance sheet strength. DBS is in a very strong liquidity position. Its Common Equity Tier 1 Capital Adequacy Ratio was 14.1%, well above the regulatory minimum of 6.5%.
This compares favourably to 2018 as DBS’ Capital Adequacy Ratio improved due to profit growth. In addition, its leverage ratio stood at 7.3%, well above the 3% regulatory minimum.
The Foolish bottom line
At its current share price, DBS sports a very respectable 5% dividend yield. Moreover, the bank’s long track record of growth, well-covered dividend, and stable balance sheet mean that it is likely to sustain dishing out this level of dividend and even very likely to grow it in the future.
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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 Jeremy Chia owns shares of DBS Group Holdings Ltd.