Singapore bank dividends: What is the outlook for the rest of 2020?

With Singapore’s central bank capping dividend amounts at 60% this year, how will the final FY2020 DPS for DBS, OCBC and UOB be affected?

  • DBS’s projected FY2020 DPS yield: c.3.5%
  • OCBC’s projected FY2020 DPS yield: c.3.6%
  • UOB’s projected FY2020 DPS yield: c.3.9%

In our most recent update on Singapore’s three main money lenders – DBS Group, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB), we had examined their respective stock and business outlook for the next two years.

This week, we shine the spotlight on the banks’ dividends, and how pay-outs will be impacted by Monetary Authority of Singapore’s (MAS) directive last month for dividends per share (DPS) to be capped at 60% of FY2019’s sum.

DBS Group’s projected FY2020 dividend yield: 3.5%

DBS Group lowered interim dividends by the largest percentage in Q2.

The group proposed a half-year dividend amount of S$0.18 per share, 40% below the amount of S$0.30 paid a year prior.

Under MAS’ guidelines, the maximum DPS that DBS can declare for FY2020 would be S$0.738, against FY 2019’s total DPS of S$1.23.

This would equate to a maximum dividend yield of roughly 3.5% this financial year – the lowest among the three banks, based on 25 August 2020’s closing share price of S$20.99.

Comparing the three banks, CIMB brokers wrote that they preferred DBS over UOB and OCBC in terms of DPS outlook.

They have their ‘hopes up for a recovery’ in DBS’ full-year dividends for FY2021, as the bank was already confident of sustaining its DPS amount prior to MAS’ directive.

In terms of share price outlook, the DBS stock currently has an average 12-month price target of S22.96 from 20 analysts polled by Bloomberg. This represents an upside of 9.4% from Tuesday 25 August 2020's closing price of S$20.99 a share.

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OCBC’s projected FY2020 dividend yield: 3.6%

Of the three banks, OCBC saw the second largest decline in interim dividends in the latest quarter.

The group proposed an interim one-time tax-exempt dividend of S$0.159 per share, which works out to be 36.4% lower than the amount of S$0.25 paid a year prior.

Under MAS’ guidelines, the maximum DPS that OCBC can declare for FY2020 would be S$0.318, against FY 2019’s total DPS of S$0.53.

This would equate to a maximum dividend yield of 3.6% for this financial year, based on 25 August’s closing share price of S$8.73.

In their latest note, DBS brokers stated that they prefer UOB over OCBC for its higher dividend yield of 3.9%, adding that they ‘remain cautious over OCBC’s larger exposure to regional small and medium enterprises in Hong Kong and Indonesia’.

Meanwhile, CIMB had called OCBC their least preferred dividend pick, citing the bank’s ‘unexpected credit costs and volatile treasury income’ as key factors.

In terms of share price outlook, the OCBC stock currently has an average 12-month price target of S$9.87 from 21 analysts polled by Bloomberg. This represents an upside of 13% from Tuesday 25 August 2020's closing price of S$8.73 a share.

UOB’s project FY2021 dividend yield: 3.9%

UOB declared the smallest drop in interim dividend pay-out this year.

The group proposed a dividend of S$0.39 per share, down 29% from the amount of S$0.55 paid a year prior.

Under MAS’ guidelines, the maximum DPS that UOB can declare for FY2020 would be S$0.78, against FY 2019’s total DPS of S$1.30.

This would equate to a maximum dividend yield of roughly 3.9% this financial year – the highest among the three banks, based on 25 August 2020’s closing share price of S$20.06.

As mentioned above, DBS researchers prefer UOB over OCBC ‘as a more defensive’ stock pick due to its higher dividend yield, as well as higher return on equity and larger domestic exposure.

Looking further ahead, RHB analysts predict that UOB’s full-year dividend amount for FY2021 will increase to S$0.90 – assuming that there are no further MAS updates.

In terms of share price outlook, the UOB stock currently has an average 12-month target of S$21.93 from 20 analysts polled by Bloomberg. This represents an upside of 9.3% from Tuesday 25 August 2020’s closing price of S$20.06 a share.

How to trade Singapore banks with IG

Are you feeling bullish or bearish on DBS, OCBC or UOB stocks? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

  1. Create a live or demo IG Trading Account, or log in to your existing account
  2. Enter <DBS Group Holdings Ltd>, <Oversea-Chinese Banking Corp Ltd> or <United Overseas Bank Ltd> in the search bar and select the instrument
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

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