DBS, UOB and OCBC near all-time highs. Worth buying at 5% dividend yield?

What happened?

The share prices of Singapore banks performed exceptionally well in 2024.

Earlier, I shared that DBS was one of the top blue chip stocks in Singapore, with its share price soaring by 44% to reach an all-time high in 2024. 

Likewise, UOB and OCBC have also performed well, with their share prices rising by 28% in 2024.

This far exceeds the 17% gain in Singapore benchmark Straits Times Index (STI) over the same time period. 

It is no wonder that I have seen some discussion in the Beansprout community about it is still worthwhile buying Singapore banks. 

Let us dive deeper into the financial performance of DBS, UOB and OCBC in 2024, and find out more about their prospects in 2025.

Recap of 3Q24 earnings - Record income across all three banks

DBS saw 3Q24 net profit up 15% YoY, surpassing S$3 bn for the first time, with UOB S$1.6 bn core net profit for 3Q24 up 11% YoY, driven by record net fee income, trading and investment income while OCBC 3Q24 net profit of S$1.97 bn was up 9% YoY, bringing 9M24 net profit to a new record of S$5.9 bn. 

Net interest income stable despite NIM compression 

The YoY growth in net interest income at DBS and UOB were driven mainly by healthy loans growth and balance sheet expansion, even as net interest margin (NIM) compressed YoY, while OCBC saw a marginal 1% decline in net interest income. 

Non-interest income’s share of total income continued to grow

DBS’ record fee income were led by wealth management, higher treasury customer sales, and the strongest markets trading income in ten quarters. 

Similarly, fee income for UOB was at a new high of S$630 mn, supported by healthy trade and wealth demand and higher card fees. 

For OCBC, non-interest income was up a robust 41% YoY, supported by increased fee, trading and insurance income. 

Credit costs remain manageable 

For UOB, 3Q24 credit costs increased to 34 basis points, up 10 basis points QoQ due to the Thailand retail portfolio, following the Citi integration last quarter. 

However, management guided that credit costs for the full year will remain within its guidance of 25 to 30 basis points. 

DBS credit costs rose marginally by 6 basis points QoQ to 14 basis points, while OCBC credit costs rose 7 basis points QoQ to 22 basis points. 

Strong capital ratios support sustainable dividend

The improved earnings and continued strong asset quality of the banks have helped to sustain healthy Common Equity Tier 1 (CET1) ratios, which have all improved meaningfully QoQ across all three banks. 

QoQ, DBS CET1 ratio rose from 14.8% to 17.2%, UOB from 13.4% to 15.5% and OCBC from 15.5% to 17.2%. 

Capital management is key to watch 

DBS announced a new share buyback programme of S$3 billion, with UOB CEO also alluding to the possibility of considering a share buyback programme. 

Given the strong capital position of all three banks, we believe dividend increases are a possibility in the upcoming full year earnings announcement for 2024 and in 2025. 

Capital management is likely to be a focus for shareholders in the near term, as a means by which the management teams of the three local banks balance the need for capital adequacy, growth and importantly, enhancing shareholder returns. 

Positive outlook in 2025

DBS expects group net interest income to be around 2024 levels, with a slight decline in Group NIM mostly offset by healthy loan growth. While credit costs are expected to normalise to 17-20 bps, management is not seeing signs of stress so far. Overall, 2025 pretax profits are expected to be around 2024 levels, with net profit lower due to the global minimum tax of 15%. 

For UOB, it expects high single-digit loan growth, double-digit fee growth and higher total income in 2025. With credit costs kept within the 25-30 basis points range and its strong capital position, capital management initiatives remain a possibility.

Singapore banks offer a dividend yield of close to 5% 

Following the strong share price performance in 2024, the price-to-book valuations for all three Singapore banks are currently above their historical averages. 

DBS is now trading at a price-to-book ratio of 2.0x, while UOB and OCBC are at 1.4x. 

However, Singapore banks continue to offer an average dividend yield of around 5%. 

Based on consensus forecasts, OCBC is projected to provide the highest dividend yield at 5.2%, followed by DBS at 4.9% and UOB at 4.8%. 

This is above the dividend yield of the Straits Times Index (STI). 

Hence, Singapore banks may still look attractive for dividend investors, especially if they were to take on more active capital management activities or raise their dividend payouts. 

Related Links:

• DBS Group Holdings share price history and share price target

• United Overseas Bank share price history and share price target

  OCBC share price history and share price target

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