As investors in Singapore enjoy a strong run in the local Straits Times Index (which is up over 11% so far in 2021), it’s worth asking ourselves what has caused this.
That’s because Singapore’s stock market last year performed terribly versus other global markets as the benchmark index fell 8% in 2020.
One big reason for the rally so far in 2021 has been the apparent “rotation into value”.
Given the Straits Times Index (STI) is full of “old economy” companies such as banks and energy firms, it makes sense that they have performed well recently as the local economy is set to rebound.
On that note, the local banks – DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation (SGX: O39) or also known as OCBC, and United Overseas Bank Ltd (SGX: U11), also known as UOB – have contributed to these gains.
That’s because they have a large weighting in the STI, making up over 40% of the index. But which Singapore bank stock is the best to buy and hold for the long term?
Dividends. That’s one of the main reasons that investors buy into Singapore stocks. Paying out profits as consistent dividends has been one thing that Singapore banks have excelled at.
Obviously, last year that changed as the Monetary Authority of Singapore (MAS) placed a 60% cap (of 2019 total dividends) that banks could pay out last year.
However, now that we look to be past the worst of the Covid-19 pandemic, dividend payouts – without caps – could resume later this year.
Looking over the decade from 2009-2019, which Singapore bank had the best growth rate of its dividend? That track record could help investors determine which one has the best recent track record.
As it turns out, the fastest dividend grower was DBS, which grew its dividend per share (DPS) at a compound annual growth rate (CAGR) of 8.2% over the period.
It was followed closely by UOB, which grew its dividend at a CAGR of 8.0% and then lastly OCBC, which expanded its dividend at a CAGR of 6.6%.
If we look at the growth opportunities for each bank outside of the small Singapore market, it would look like DBS again has the most promising runway.
Singapore’s largest bank acquired Indian lender Lakshmi Vilas Bank (LVB) and will merge it with DBS Bank India in order to push further into India’s massive underbanked population.
Meanwhile, while both OCBC and UOB arguably have a stronger presence in neighbouring Southeast Asian countries, their Greater China operations lag the size and scale that DBS operates at.
That’s particularly true of Hong Kong and the Greater Bay Area (GBA), which DBS has committed to focusing on over the next few years as it grows its presence there.
Buy the winner
Finally, as long-term investors, we should try to focus on buying and holding on to winners that compound.
In the Singapore banking space, the biggest winner over the past decade has been DBS. The numbers speak for themselves.
Over the past 10 years, DBS shares have provided a total return (share price appreciation + reinvested dividends) of 180% while UOB has given investors a total return of 101%.
Meanwhile, OCBC brings up the rear with a total return over the past 10 years of just 76%.
As DBS proves, buying the leader and long-term winner can be a successful formula for investors when trying to decide between similar companies in specific sectors.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of DBS Group Holdings Ltd.