United Overseas Bank Ltd (SGX: U11), or UOB, is one of the three main local banks listed in Singapore, along with Oversea-Chinese Banking Corp Limited and DBS Group Holdings Ltd.
For investors looking for conservative investments, UOB is a good candidate for future consideration. Here are three reasons I think that’s so.
Proven track record
One of the most important factors investors seek in any investment is a company’s ability to sustain its profitability in the foreseeable future. To assess this, investors will usually look at the company’s track record for a minimum of five years. A company with a proven track record has a higher probability of sustaining its profitability in the future.
To me, a good track record is one that is either stable or growing over a period of at least five years.
UOB delivered a commendable performance over the last five years. Total income grew from S$6.7 billion in 2013 to S$9.1 billion in 2018. Similarly, net profit attributable to shareholders grew from S$3.0 billion in 2013 to S$4.0 billion in 2018. The former was up by 36%, while the latter was up by 33% during that period.
The next important criterion of a conservative investment is a good dividend track record.
Though there are theories arguing that a dividend isn’t the most important factor (since companies that pay little or no dividend can instead reinvest to grow their business), conservative investors generally prefer to receive stable paychecks deposited into their bank accounts.
Does UOB have a good track record? Let’s explore further.
From 2008 to 2018, not only has it paid a dividend every year, it has also doubled its dividend per share from S$0.60 in 2008 to S$1.20 in 2018. In other words, its dividend was up by 100% during the period.
Clearly, UOB has demonstrated a good track record of paying dividends to investors.
Conservative capital adequacy ratio
A capital requirement (also known as capital adequacy) is the amount of capital a bank has to hold as required by its regulator. Capital requirements are set to ensure that banks won’t default during difficult economic conditions.
For investors, capital adequacy ratio is a good indication of whether a bank is operating in a conservative manner. In general, the higher the capital adequacy ratio, the more conservative a bank is in conducting its business.
Here, we think UOB maintained a rather conservative capital requirement. As of 30 June 2019, its Common Equity Tier 1 capital adequacy ratio (CAR), Tier 1 CAR, and Total CAR were 13.9%, 14.9%, and 17.2%, respectively. These ratios were well above the respective regulatory requirement of 6.5%, 8%, and 10%.
The Foolish bottom line
In sum, conservative investors should consider UOB due to its strong financial and dividend track record, as well as its conservatively capitalized balance sheet.
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, United Overseas Bank Ltd, and Oversea-Chinese Banking Corp Limited