As we all know, Singapore stocks have been underperforming global markets for many years. The Singapore market ETF, STI ETF is still below its 5-years high. In fact, the highest STI ETF ever achieved was $3.96 in 2007 and STI ETF has never broken this record since then.
Since about 46% weightage of STI ETF is from the three local banks – DBS, OCBC and UOB, we shall examine these Singapore bank stocks are worth investing in and holding for the long term.
I had share 5 key criteria I use to analyse these bank stocks previously, you can read that article here.
DBS vs OCBC vs UOB past 5 year returns
The following are the return table for the past 5 years, from August 2016 – August 2021:
| STI ETF | DBS | OCBC | UOB | |
|---|---|---|---|---|
| Total Price Gain | 8.87% | 99.93% | 33.53% | 41.93% |
| Total Dividend Gain | 20.28% | 34.53% | 24.19% | 25.72% |
| Total Gain | 29.14% | 134.46% | 57.72% | 67.65% |
| Annualised Price Gain | 1.71% | 14.86% | 5.95% | 7.25% |
| Annualised Dividend Gain | 3.76% | 6.11% | 4.43% | 4.68% |
| Annualised Total Gain | 5.48% | 20.97% | 10.38% | 11.94% |
| NAV Growth Rate | 4.45% | 6.26% | 5.18% | |
| Current Price to NAV | 1.45 | 1.05 | 1.11 |
4 Key Observations: Which Singapore bank stock to buy?
1 – SG Banks outperformed STI ETF
During these 5 years, all three banks have outperformed STI ETF.
- DBS has generated 20.97% per year
- UOB at 11.94% per year,
- OCBC at 10.38% per year
You could have done better simply by investing directly in Singapore banks than the whole Singapore Index.
2 – STI ETF’s returns was bolstered by its dividend yield
STI ETF though has the lowest annualised return, but still generated 5.48% per year.
This is mainly because of the dividend yield of 3.76% per year. STI ETF did not experience significant changes in price during these 5 years, on average.
3 – DBS performed the best but…
Although short term movement for the three banks might be similar, in the long term, DBS is the bank with more volatility and managed to double price gain in these 5 years.
There could be many factors affecting the movement of a share price, but one key factor that we could see was that DBS had the highest annualised dividend yield at 6.11% based on an August 2016 entry price.
4 – OCBC is currently the most undervalued
Price is what you pay, value is what you get.
In terms of NAV growth rate, OCBC generated the highest annualised NAV growth rate at 6.26% per year. OCBC’s NAV growth rate has outgrown its annualised price gains.
This is the reason why OCBC is trading at 1.05x price to NAV, which is the lowest among the three banks. This also suggests that OCBC is the most undervalued bank based on Price to NAV.
My Views
Although Singapore stocks are lagging behind global markets, the three local banks were still able to generate double digits annualised returns for the past 5 years.
Based on the comparison of price to NAV, OCBC and UOB are still trading on a discount to their historical average. While it may take some time for them to reach their fair value, the banks are giving a 4+% dividend yield based on the current price. The dividend payout ratio is about 40%-50% of their Earnings which shows that their dividends are likely to be sustainable. In fact, they might even increase their payout in future.
Moving forward, with the economy opening up and the removal of dividend cap from MAS coupled with lower allowances for non-performing loans, bank stocks should continue to perform well.
Disclaimer: I am holding one of the banks as the top holding in my stock portfolio. This bank stock has given me 5 digits dividend gain and a 5 digits capital gain thus far. Do like my Facebook page here to receive more financial updates.
