OCBC earnings disappoint. Worth buying at 6.3% dividend yield?

By Gerald Wong, CFA • 28 Feb 2024 • 0 min read

OCBC's share price fell even as the company reported an increase in profit and dividends. We find out if OCBC is worth considering for dividend investors.

ocbc share price dividend feb 2024

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What happened?

Investors seem to be disappointed with OCBC’s latest earnings release.

The company reported a record profit of $7.02 billion in 2023, an increase of 27% compared to the previous year. 

OCBC also announced a final dividend of 42 cents, an increase from 40 cents a year ago.

Despite the strong headline numbers, OCBC’s share price fell by more than 2% to $13.00, after reaching a 52-week high of $13.45 recently. 

This is in sharp contrast to DBS's share price, which jumped after it announced an increase in dividends and bonus share issue. 

We dive deeper into OCBC’s earnings to find out more about the company’s prospects. 

ocbc share price feb 2024

What you need to know about OCBC results

#1 – Net profit was below market expectations

OCBC reported a net profit of S$1.62 billion in the fourth quarter of 2023, an increase of 12% compared to the previous year. 

Compared to the previous quarter, OCBC’s net profit in the fourth quarter was 10% lower.

The reported net profit was also below market expectations of a $1.71 billion profit. 

ocbc results dividend feb 2024
Source: OCBC

The key driver behind the weaker than expected profit was driven by a decline in non-interest income compared to the previous quarter.

Life & General Insurance income fell to S$88 million in the fourth quarter from S$220 million in the previous quarter. 

As a result, OCBC’s non-interest income fell to S$811 million in the fourth quarter.

ocbc non interest income 2023
Source: OCBC

On a more positive note, OCBC’s net interest margin rebounded slightly to 2.29% in the fourth quarter of 2023. 

This represents an increase from its net interest margin of 2.27% in the third quarter and 2.26% in the second quarter. 

ocbc net interest margin feb 2024
Source; OCBC

#2– Dividend raised

OCBC announced a final dividend of 42 cents, an increase from 40 cents a year ago.

Together with an interim dividend of 40 cents, this would bring OCBC’s total dividends for fiscal year 2023 to 82 cents. 

This would represent a payout ratio of 53%, unchanged from the payout ratio in the previous year. 

The payout ratio is also inline with OCBC’s previous guidance that its dividend payout ratio will be maintained at 50%.

ocbc dividend 2024
Source: OCBC

#3– Cautious guidance on 2024

Looking ahead, OCBC has issued a fairly cautious outlook for 2024.

The bank expects global growth to slow down, and global inflation to remain sticky in the near term.

OCBC also expects interest rates to trend downwards likely from the second half of 2024.

As a result, it targets net interest margin of 2.20% to 2.25% in 2024, moderating slightly from its net interest margin of 2.28% in the 2023 and 2.29% in the fourth quarter of 2023.

OCBC is also targeting a return on equity (ROE) of 13% to 14% in 2024, stable from its ROE of 13.7% in 2023. 

OCBC targets to main a dividend payout ratio of 50%. 

ocbc 2024 dividend target
Source: OCBC

What would Beansprout do?

From the outlook shared, it seems like the net interest margin and profitability of OCBC will likely be capped as interest rates trend downwards.

As such, we believes investors will likely focus more on dividends offered by the Singapore banks in the year ahead.

Based on OCBC’s total dividend per share of 82 cents and its current share price of S$13.00, OCBC offers a dividend yield of 6.3%.

This would be higher than the dividend yield on the Straits Times Index (STI) of 5.3%.

OCBC’s dividend yield would be slightly above UOB’s dividend yield of 6.0%, but below the dividend yield offered by DBS. 

Hence, there appears to be more reason for income investors to consider DBS with the higher dividend yield that it offers. 

To find out how much dividends you will be receiving as a OCBC shareholder and the dividend payment dates, you can check out our OCBC dividend page.

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This article was first published on 28 February 2024 .

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