DBS raised its dividends again. Worth buying at 7.5% yield?

What happened?

DBS raised its dividends once again. 

The company reported a record profit of $10.3 billion in 2023, an increase of 26% compared to the previous year. 

This would mean that DBS has met its target of achieving a profit of above S$10 billion this year. 

With the strong profit, DBS raised its dividend per share to S$0.54 for the fourth quarter from S$0.48 in the third quarter. 

DBS’ share price rose by more than 2% to reach S$32.42 following the announcement of the dividend increase. 

We dive further into DBS earnings to find out more about the company’s prospects.  

What we learnt from DBS results

#1 – Net profit declined slightly in fourth quarter in 2023

DBS reported an underlying net profit of S$2.39 billion in the fourth quarter of 2023, an increase of 2% compared to the previous year. 

Including one-off items such as the acquisition of Citigroup’s Taiwan consumer banking business and a S$100 million corporate social responsibility commitment to charitable causes, its net profit would be at S$2.27 billion. This would represent a 3% decline compared to the previous year. 

Compared to the previous quarter, DBS' underlying net profit declined by 9%.

The key driver behind the weaker profit in the fourth quarter was due to a fall in DBS’ net interest margin.

DBS’ group net interest margin fell to 2.13% in the fourth quarter from 2.19% in the previous quarter.

This was driven by higher deposit costs, where DBS has to pay customers a higher interest rate for deposits with the bank. 

Looking ahead, DBS expects its net interest margin in 2024 to be slightly lower than the 2.13% level it achieved in the fourth quarter. 

#2 – Dividends raised

The good news for shareholders is that DBS has raised its dividend per share in the fourth quarter to S$0.54.

This would represent an increase from the dividend per share of S$0.42 in the fourth quarter of 2022.

It would also be an increase from the dividend per share of S$0.48 in the third quarter of 2023. 

For the full year of 2023, DBS’ dividend per share would be S$1.92, an increase from the S$1.50 of ordinary dividend per share in the previous year. 

DBS has raised the dividend per share due to the strong return on equity of 18.0% generated in 2023. 

Looking ahead, DBS expects its return on equity in 2023 to remain elevated at 15-17%, albeit lower than what it achieved in 2023. 

DBS' dividend policy is to pay sustainable dividends that grow progressively with earnings.

This implies that the current annualized ordinary dividend of S$2.16 (or S$0.54 x 4 quarters) per share may be the minimum amount going forward.

In fact, DBS CEO Piyush Gupta expects that there will be even more opportunities to return capital to shareholders. This may mean even higher dividends in future years, barring unforeseen circumstances in the medium term. 

#3 – Bonus distribution proposed

DBS has proposed a bonus issue of one bonus share for every existing 10 ordinary shares held.

This means that if you have 1,000 ordinary shares in DBS, you would receive 100 bonus shares in DBS. 

Here’s the better news – DBS’s guidance of dividend per share of S$2.16 will be applied over the enlarged share base. 

This would mean that the total dividends you may receive would increase further compared to this year.

Here’s an example of how it works.

If you have 1,000 ordinary shares in DBS and held it through the latest fiscal year 2023, you would have received total dividends amounting to $1,920 based on the total dividend per share of S$2.16.

With the bonus issue, you would have 1,100 shares after the bonus shares have been issued. Based on the annualized dividend per share of S$2.16, you may receive total dividends amounting to S$2,376 in the coming fiscal year. 

This would represent a 24% increase in total dividends you may receive compared to the previous year. 

What would Beansprout do?

DBS offers an attractive dividend yield of 7.5%, based on the expected dividend per share of S$2.16 and taking into account the larger share base.

This would be higher than the dividend yield on the Straits Times Index (STI) of 5.2%.

DBS’ dividend yield would also be higher than the expected dividend yield on UOB of 6.0%, and the expected dividend yield on OCBC of 6.3%.

The key question we would be asking is whether DBS can maintain its dividend per share of S$2.16 per share. 

Based on its return on equity guidance of 15-17% in 2024, it appears that DBS remains confident about its outlook in the near term.

DBS also has a strong capital position, with a CET-1 ratio of 14.6% as at December 2023.

What may then cause DBS to cut its dividends? 

If the Fed cuts its interest rates much more aggressively than expected, then DBS’ profit might come under pressure.

If there is a sharp global downturn, DBS’ profit may also be impacted. 

On the other hand, if we believe that DBS would be able to maintain its profit at elevated levels, then we would consider DBS as an income investor for the dividend yield that it offers.  

Do note that as the bonus issue is issued on the basis of one bonus share for every existing 10 ordinary shares held, you may end up with odd lots of DBS shares if you were to hold or purchase less than 1,000 DBS shares. 

The record date to be eligible for the DBS bonus share issue has yet to be announced, and you can refer to our DBS stock page to get updates on the latest DBS dividend and bonus issue dates. 

Related links:

• DBS share price and analysis
• DBS dividend history

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