1 Singapore Dividend Stock I’d Buy and Hold in 2023

Top REITs buy 2022

Tim Phillips

December 21, 2022

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Singapore’s stock market has become synonymous with “stability” in 2022. That’s because even though the local Straits Times Index is down so far this year, it’s easily outperformed other global stock markets.

One of the main reasons for this is the perceived “value” that’s available in Singapore’s stock market.

Many traditional sectors in Singapore, like banking and commodities, are benefitting from the macroeconomic environment we find ourselves in.

That’s particularly true in a time when inflation is high and interest rates in the US are rising at their fastest pace in over 40 years.

So, while many investors think it may be time to be switching up their portfolios as we enter the new year, here’s one Singapore dividend stock that I think investors should be adding to in 2023.

DBS provides dividends and growth

We all know Singapore’s biggest bank – DBS Group Holdings Ltd (SGX: D05) – has had a great 2022 so far.

In fact, many market commentators believe that the US Federal Reserve (Fed) will start cutting interest rates in the second half of 2023.

As a result, that means many project that the continued upside for banks from increasing net interest income (NII), and subsequently higher net interest margin (NIM), will be limited.

Yet in DBS, we have a bank that has been leading the charge in terms of increases to its NII and NIM.

In its latest Q3 2022 earnings, DBS saw its NIM climb steeply by 32 basis points (bps) quarter-on-quarter to 1.90%.

Meanwhile, DBS’s NII hit S$3.0 billion in Q3 2022 as higher rates in the US benefitted the spreads.

We also tend to forget about the dividend that DBS offers. It maintained its quarterly dividend per share (the only Singapore bank that pays its dividend every three months) at S$0.36.

Furthermore, it has a relatively low dividend payout ratio of under 50%, which gives it more headroom to boost its dividend per share (DPS).

Looking to the broader Asia region

If we look at DBS’s business outside of Singapore, though, there are many bright spots.

For one, the bank is more exposed to the economies of Hong Kong and China. It has a strong presence in Hong Kong and last year acquired a 13% stake in China’s Shenzhen Rural Commercial Bank for S$1.08 billion.

This was completed in the hope of benefitting from the future growth of China’s Greater Bay Area.

DBS CEO Piyush Gupta has also been savvy in how he assesses viable growth opportunities, both within and outside Singapore.

Elsewhere in Asia, DBS has also made some headway in India – one of the region’s most exciting growth markets.

It acquired distressed Indian bank, Laskshmi Vilas Bank (LVB), in late 2020 and has merged it with its local DBS India operations.

The acquisition of LVB should allow DBS to expand its array of services in Asia’s third-largest economy.

Finally, DBS’s planned acquisition of Citigroup Inc’s (NYSE: C) retail assets in Taiwan should provide future growth levers for the bank over the coming years.

What if the Fed keeps rates elevated?

A lot of investors are optimistic that the US Fed will start cutting rates in the second half of next year but is that 100% guaranteed? Certainly not.

If there is a recession and the Fed decides that defeating higher inflation is the priority, then a “pivot” to cutting interest rates at the first sign of trouble won’t be forthcoming.

Therein lies an assumption – that we should be selling bank shares and buying into the recovery from lower interest rates.

However, successful long-term investors have always managed to find that success by going against conventional wisdom.

When it comes to Singapore banks, perhaps 2023 will be another year where the likes of DBS will see continued strength.

As the leading bank and dividend payer among the bank stocks, DBS looks positioned to do well in 2023 – particularly if interest rates stay higher for longer than anticipated.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of DBS Group Holdings Ltd.

About the Author: Tim Phillips

Tim Phillips
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer. In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.