SG Banks – Still A Good Dividends Source

DBS and UOB will be releasing their half year results tomorrow. OCBC will do the same on the day after. Along with the releases, these 3 big local banks are expected to announce their interim dividend distribution.

person holding black ceramic pig coin bank
Photo by cottonbro on Pexels.com

I never knew banks are good source of dividend income until lately

Like I wrote in my last post, as I just wanted a 5% dividend yield, a friend of mine told me that I could just put all my money into DBS and save all the trouble trying to diversify and look for undervalued stocks. Its technically true.

My dad only holds bank stocks and he just accumulates every now and then but never sells a single share for the last 20-30 years. When he was given a chance to get scrip shares instead of cash dividends, he would gladly do it.

I always wonder why he keeps holding them – never consider taking profit and buying them back when their share prices were low during all the crisis.

Whenever I asked him about it, his reply was the same, “Why should I sell them? They give good dividends, better than the fixed deposit. Furthermore, I use their dividends to buy their shares at a discount to market and add more each time.”

Well, he said he never recalled DBS or UOB ever stopping dividends. I never checked but from “more recent” memory, I think he might be right.

Our local banks being a dividend machine!

Last year DBS declared $1.20 normal dividends + $0.30 special dividend. Even at its peak closing share price of $27.73 last year on 28 April, the dividend yield would have been 5.4% (wow, even at the peak!).

UOB is almost the same, $1.05 normal dividend + $0.20 special dividend for whole last year. Peak closing price last year was $27.77, dividend yield was 4.5%.

Imagine their yields today if they continue to dish out the same amount of dividends this year. So, enough said about them 🙂

But this year, it is going to be different. Yes, its COVID but at the same time, it is MAS

On 29th Jul, the Monetary Authority of Singapore (“MAS”) called on the locally-incorporated banks headquartered in Singapore (“Local Banks”) to cap their total dividends per share (“DPS”) for FY2020 at 60% of FY2019’s DPS, and offer shareholders the option of receiving the dividends to be paid for FY2020 in scrip in lieu of cash.”

Would the Local banks listen? Yes, I think so.

Hence, the dividends from the bank this year would be less, at least 40% less.

Yes, there is this advice from MAS but also the COVID-19 throwing a curve ball into their growth plans. Understandably, the bank stocks took a beating immediately the following day.

However, in my view, a reduced dividend to preserve cash is not necessarily a bad move

If the banks are doing well, then reducing dividend now is just being cautious and when the situation improves, the banks can always declare “special dividend” to reward shareholders for staying with them throughout this crisis.

Look on the bright side, at least MAS has not advised the banks to stop dividend distribution. This means that MAS is still confident that our local banks are doing ok.

In fact, our 3 local banks are often considered amongst the “strongest” banks globally when measured by the Common Equity Tier 1 (CET1) ratio. They are considered a class above the rest.

photo of male gymnast practicing on gymnastic rings
Photo by Andrea Piacquadio on Pexels.com

So, what would the dividend be like this year?

For full year, DBS’ dividend may be $0.72 (60% of $1.20) and UOB may be $0.63. If we buy DBS ($19.69) and UOB ($19.31) today, we would still be getting yields of 3.6% and 3.3% respectively.

Not that bad in the midst of a major major global crisis !

And when the time comes for us to emerge from this COVID-19 crisis, and with DBS and UOB returning to normal dividend distribution of $1.20 and $1.05 (or more) respectively and with the shares you bought today, you would be getting 6.1% and 5.4% yield. Sumptuous!!

That’s not bad at all! Looks like I will be following my dad’s footsteps to accumulate more banks shares now.

Let’s wait patiently to see what DBS and UOB would announce tomorrow. Finger crossed!

(I didn’t mention much about OCBC in this post but the trend is the same)

Regards,

Warrior

(Please note that I am vested in DBS, UOB and OCBC shares)

 

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