Today, more than half of the STI Index value comes from DBS, OCBC and UOB. Singapore banks have become more dominant in the Singapore stock market. And their shares have been strong performers over the past five year:
- DBS: +181% gains
- OCBC: +95% gains
- UOB: +81% gains
I earlier shared my thoughts on how to value DBS shares and my thoughts on Singapore banks trading at all-time highs. Now, I regard Singapore banks as Dividend Dominators.
But Diligence Club members will know Singapore banks’ true stock category.
But we also want to know exactly which Singapore banks pay the most reliable dividends for retirement.
To pierce through the complex numbers, let’s unpack this.
What you need to know about DBS, OCBC and UOB’s “active” ingredients
Singapore banks are asset heavy. A diligent investor would assess these banks based on the quality of assets. You see, you want to identify “active” ingredients that are in a bank’s balance sheet.
Chemical solutions mix different compounds and elements. Some of these ingredients will be inert, which doesn’t affect other elements and compounds. Some of these ingredients will interact and make the entire solution acidic or basic.
A bank’s balance sheet has debt, which can be highly “active” if they are required to consistently pay back principal and interest.
On the other hand, loans, investments and bonds in a balance sheet are also “active” in the sense they consistently generate profits, interests, dividends and capital gains.
Look at DBS: Out of its balance sheet is S$841 billion of assets. Out of its assets are S$433 billion of loans. That’s more than half of its total assets.
Now, people will tell you loans drive DBS’s core profits. People will also tell you that’s where much of the bank’s risk comes from. But not many people will tell you these loans can influence how reliable DBS dividends are. I’ll explain.
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How have Singapore banks’ dividend cycles changed?
Over the last 20 years, DBS cut dividends more times between 2005-2025, as compared to both OCBC and UOB. In fact, DBS’s dividend cuts were more severe during the global financial crisis (2007-2010) because it faced greater exposure globally.
It had more overseas assets and more complex investment assets, which it tried to increase more provisioning for bad loans.
In other words, DBS was worried its more aggressive, active ingredients would blow out of proportion. In 2007, DBS had loans that were exposed to China and Hong Kong as well.
What’s more, its impairment of Dao Heng Bank also led to dividend cuts as earnings collapsed that year.
Then during 2017, DBS had to reduce its dividend payout ratio because it was exposed to the oil & gas crisis.
Meanwhile, UOB only cut dividends once during that same 2007-2010 period. OCBC remained a steady dividend payout
Both had regional loans. OCBC’s next biggest country exposure was Malaysia, which had mostly more reliable mortgages. UOB was focused on loans within the region. This gave both banks steadier asset quality and their balance sheet was less pressured.
Thus, both suffered a smaller dividend cut. Both of these Singapore banks’ had a sturdier banking franchise and more controlled overseas exposure.
Even during COVID-19 pandemic, DBS took longer for it to recover its dividends compared to OCBC and UOB. This time, they want to bolster its safety balance sheet.
Today, DBS’s loans from China and Hong Kong still account for a larger portfolio of its loans. OCBC and UOB are still mostly in the ASEAN region.
These active ingredients are the ones that drive a bank’s profitability and risks. Ultimately how consistent they pay dividends.
DBS, OCBC, UOB – Which Singapore Bank Pays the Most Reliable Dividends?
All three Singapore banks had to cut dividends during the COVID-19 pandemic largely because of MAS wanting to cap the banks’ dividend payout.
However over the last 20 years, DBS dividends have been more cyclical. Its dividend cuts between 2006 and 2009 were more severe. Then during, COVID-19 pandemic, it cut dividends again.
Despite DBS being the hot favourite amongst Singapore investors, OCBC actually has been a reliable dividend payer. In fact, during the global financial crisis, it grew its dividend payout and only had to cut dividends once between 2006 and 2009.
This was the same for UOB as well, with UOB often rebounding faster in subsequent years.
When it comes to investing for dividends, investing for retirement, you want to look for a safe, reliable dividend income stream. I don’t disagree: Singapore banks are dividend powerhouses.
Having said that, in terms of most reliable dividend payouts: I’d pick OCBC and UOB as the Singapore banks that pay the most reliable dividends, with moderate dividend cuts during tough market cycles.
I understand it’s far easier to invest in a stock that’s far less cyclical than the other.
My final thoughts
Singapore banks are built on solid fundamentals. In fact, their massive deposits even put competitors like digital banks at a huge disadvantage.
And that’s exactly why Singapore banks have a monopoly advantage in the Singapore market – they are too entrenched to be disrupted.
What’s more, MAS keeps them in check. However, this doesn’t stop DBS, OCBC and UOB from having cyclical dividend payouts over the years. And they do.
As long-term dividend investors, dividend reliability is still crucial.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
To me a dividend growth stock is one that raises their dividends every year, year after year. I would not call the Singapore Banks dividend growth stocks. All three seem to cut or freeze their dividends, sometimes for years at a time. So at best they are dividend stocks but not reliable. I would not buy them for dividends.
I have not looked at the charts, but I assume they must be capital growth or momentum stocks, otherwise why do Singaporeans love them 🙂
Hey Mark,
Thanks for the reply. Yup, got a point there. they are also cyclical in nature due to interest rate cycles. Last 15 years, their assets have expanded because of low interest rates since 2010, which has reflected in their share prices.
Cheers,
Willie