Comparing the Top 3 Banks in Singapore
Banks make up a huge part of the Singapore investment scene and they are extremely popular among investors. They are attractive blue-chip stocks as they provide relatively high dividend yields and growth potential. Personally, I am looking to add some bank stocks to my dividend portfolio at the end of this year as I feel they are great long-term stocks for dividend investors. I will be analyzing the top 3 Singapore bank stocks using the following 5 financial terms:
1. Earnings Per Share (EPS): EPS shows how much a company makes for each share of its stock and is a good indicator of a company's profitability. You can read more about EPS here.
2. Returns On Equity (ROE): ROE measures how effectively a company is using its assets to generate profit and its a good indicator of the company's management proficiency. You can read more about ROE here.
3. Dividend Yield: Dividend yield shows much a company is paying out dividends to its shareholders. You can read more about dividend yield here.
4. Price to Book (P/B): P/B measures the market's valuation of a company compared to its book value. P/B ratio is often used by value investors to identify potentially undervalued companies. A P/B under 1 usually indicates an undervalued company. You can read more about P/B here.
5. Target Price: Target price is an estimate of a stock's future price set by various financial analysts (usually from various banks) using future earnings and various financial valuations. You can read more about how a Target Price is calculated here.
1. DBS (D05)
DBS is one of Asia's largest banks and has a market capitalization of $53 billion. They have constantly made the effort to modernize and digitalize their financial services to stay at the forefront of digital banking. DBS is an extremely popular and reliable bank among Singaporeans. This is evident from the fact that almost every Singaporean owns a DBS bank account. DBS's EPS increased from $2.15 in 2018 to $2.46 in 2019. Their ROE increased from 12.1% in 2018 to a new high of 13.2% in 2019. DBS started an aggressive dividend payout strategy from 2018, paying out 8.3% in 2018, 7.3% in 2019, and an estimated 6% in 2020. This is a relatively high dividend yield for a blue-chip stock in the Singapore market. Moreover, DBS has a healthy dividend payout ratio and their dividends are definitely sustainable. Their current P/B ratio at the price of $20.400 is 0.98, pricing it at a fair value. They have an average target price of $21.500. I personally feel that DBS is an extremely good stock to add to your investment portfolio in the long run. Their management has been proven to be capable of adapting to the rapid advancement of technology in the 21st century and incorporating it into their business model. It had been overpriced for a long period in 2019 but it is now at fair value due to the COVID-19 situation. This is definitely one of the best Singapore bank stocks to take a look at. You can find out more about DBS 2019 annual report here.
2. UOB (U11)
UOB is another leading in Asia with a global network of more than 500 branches and offices in 19 countries. They have a market capitalization of $33 billion and is rated among the world's top banks. They provide consumer banking, private banking, commercial banking, transaction banking, investment banking, and treasury services. They also provide asset management, private equity fund management, and insurance services. Similarly to DBS, UOB has also managed to keep up with technology and transfer most of its financial services into digital platforms to continue attracting consumers. UOB's EPS has consistently increased over 5 years from $1.94 in 2015 to $2.55 in 2019. UOB's ROE increased from 11.3% in 2018 to 11.6% in 2019. UOB bank only started paying out dividends since 2019 (6.24%) and its estimated dividend yield for 2020 is 6% as well. Likewise, UOB has a healthy dividend payout ratio and extremely sustainable dividends in the future. UOB has a current P/B ratio of 0.90 at its current share price of $20.020, making it slightly more undervalued than DBS. UOB has an average target price of $21.000. I feel that UOB is similar to DBS in many aspects as both are large banks with capable management and a proven track record. However, UOB has an edge over DBS in the current COVID-19 situation as they are slightly more diversified than DBS in the banking industry. This is another Singapore bank stock you must consider adding into your portfolio. You can find out more about UOB 2019 annual report here.
3. OCBC (O39)
OCBC is the longest established bank in Singapore and is consistently ranked among the world's top 50 safest banks by Global Finance. OCBC has a market capitalization of $39 billion. They offer a broad array of financial services such as commercial banking, specialist financial and wealth management services, ranging from consumer, corporate, investment, private and transaction banking to treasury, insurance, asset management, and stockbroking services. OCBC's EPS has increased over the past 5 years from $0.95 in 2015 to $1.12 in 2019. This shows that its net profit is increasing consistently and is a good indicator of a well-managed company. OCBC's ROE decreased from 11.5% to 11.2% in 2019. This decreases OCBC's attractiveness slightly as both UOB and DBS have managed to increase their ROE. OCBC's 5-year average dividend yield is 4.4% and its estimated dividend yield for 2020 is 6%. This is a similar dividend yield to both UOB and DBS. It is worth noting that OCBC's dividend per share has increased more than both UOB and DBS for this year. OCBC has a current P/B ratio of 0.83, making it more undervalued compared to both UOB and DBS. The average target price for OCBC is currently $9.600. Personally, I feel that OCBC is another strong contender for the best Singapore bank stock given its strong financials. You can find out more about OCBC 2019 annual report here.
1. UOB - Due to its extremely well-diversified portfolio which would give it an edge in the current COVID-19 pandemic
2, DBS - Stable bank stock and impressive financial performance
3.OCBC - Due to its mediocre ROE performance and relatively lower dividend yield compared to the other 2 banks
How would you rank the top 3 Singapore bank stocks?
*Update: Monetary Authority of Singapore (MAS) has just called on Singapore banks to limit their total dividends per share (DPS) for FY2020 at 60% of FY2019's DPS and offer scrip dividends to shareholders in lieu of cash. This is a pre-emptive measure to bolster Singapore's banks' ability to lend consumers and businesses money and to preserve capital in case of a worsening in the economy. This will reduce the banks' dividend yields to an average of 4% for 2020 and will be a minor blow for dividend investors. While this is disappointing in the near term, MAS's move to preserve capital is understandable and is in line with the global regulators. Nevertheless, I still believe that Singapore's banks are stable blue-chip stocks that investors can consider adding to their portfolio in the long run.