Recently, there are two articles that compared the performance of UOB to DBS. The first from Beansprout – UOB offers lowest dividend yield amongst local banks. Switch to DBS? and the second from Financial Horse – UOB Bank pays 5.8% dividend yield only – Buy DBS or OCBC instead for higher dividend yield? (as a Singapore Investor in 2024)
Both are good articles that provide lots of information on the two banks. The first article shares more of the current state, while the second even looks at historical performance all the way back to 2008.
I am intrigued enough by the articles to crunch some simple numbers to check if DBS is really the better income counter. Given that I buy the banks counters primarily for regular cash flow, I am more interested on the sustainability and growth of dividends. I also decided to look only at data from 3-year and 5-year periods, as I think this is a better reflection of current state.
Dividend Trend
As seen from the data, over the past 3 years, the annualised growth rate of dividend is the highest for DBS. However, the difference over OCBC and UOB isn’t that great. In any case, having dividend growing at an average annual rate of about 16% for all 3 banks is definitely delightful.
Do note that for the purpose of this computation, I have assumed that if not for MAS restriction, the dividend in 2020 would be the same as 2019. As for the the return from dividends only, DBS is in the lead but the other two banks, especially OCBC, are not that far behind.
Interestingly, OCBC annualised dividend growth is the highest over the 5-year period and DBS is the lowest. However, for return from dividends only, DBS has a greater lead over the other two banks. It seems that the recent increase in dividends by DBS and the special dividend paid out last year has supercharged its return.
Trailing and Forward Yield
The 1 for 10 bonus issue for DBS has made the comparison a bit complicated. So for ease of comparison, I took the closing price on 28 March and divide it by 1.1.
This is where I differ in my view with the article by Beansprout. Not so much on DBS forward dividend yield but that of the two banks. The article used Yahoo Finance data and the forward dividend stated are $0.84 and $1.70 for OCBC and UOB respectively, so that gives a corresponding yield of around 6%.
However, that is assuming OCBC and UOB are not going to raise their dividend next year. That is possible but they might raise it too. To match the 6.6% yield from DBS, OCBC just need to increase their dividend by 9%, while UOB has to raise it higher by 14%. And I do think there is a good chance for that to happen if they can continue to do well.
Total Shareholders’ Return
If we are looking at the total shareholders’ return which includes capital appreciation, then DBS is definitely way ahead. A 82% return over a 5-year period is very impressive!
I do not deny the strong business performance by DBS, but I do not think that it is overwhelmingly better than the other two banks, especially if we consider the relative higher allowance set aside by OCBC and UOB.
Beyond the business performance, it is my opinion that DBS decision to go on quarterly dividend (since 2019) and providing greater certainty of their subsequent year’s dividend has contributed to its popularity among the (retail) investors. That leads to a higher share price and hence total shareholders’ return.
Interestingly, one actually gets a better return from OCBC if you have held it for 3 years, rather than 5 years!
Is DBS the better income counter?
Base on its current business momentum, the upcoming bonus issue (XB on 22 April) and clearer indication of FY2024 dividend, DBS does look like a more compelling buy for the moment. Hence, my recent purchase. But that doesn’t mean we should switch from OCBC or UOB. As I mentioned in my post Embrace the Genius of the AND, we don’t have to choose one option over the other. We can always have both (in this case, all three) options.
Base on business perspective and dividend sustainability, I do not see a compelling reason to do the swap. As for capital appreciation, I did not buy the three banks for that. Hence, that will not be my key consideration, especially when I believe my growth counters have better potential to do that.
Finally, the (business) world is complex and things can change rapidly. The latest announcement by UOB to lower its UOB One interest, might just give its NIM a lift. Coupled with increase in fees income and reduced expenses for integration of Citi businesses, they might surprise as the strongest performer for FY2024.
Holding on to all my banks share.