DBS Bank jumps to all time high after Bonus Shares – At 6.2% dividend yield, will I buy more or sell? (as a Singapore Investor in 2024)

Trending 3 weeks ago

As galore of you will know, DBS slope went ex prize shares connected Monday, 22 April.

Interestingly, DBS shares person done very good since then.

Here is nan value floor plan for DBS (after adjusting for prize shares).

You tin spot nan jump this week – hitting caller each clip highs astatine $34.79 (this would person translated into $38.3 pre-bonus shares).

At this price, DBS trades astatine a very pricey 1.65x book value.

And yet dividend output remains very charismatic astatine 6.2% – higher than astir REITs.

So… DBS stock value keeps going up, and it pays a higher dividend output than astir REITs.

Is it clip to load up connected much DBS shares, aliases is it clip to play a reversal?

DBS Bank shares deed each clip precocious aft Bonus Shares – outperforming OCBC and UOB Bank

Here’s nan regular floor plan of DBS Bank for reference.

Blue is OCBC and Orange is UOB.

You tin besides spot really DBS has outperformed some OCBC and UOB importantly since mid 2023:

And this week successful peculiar – aft going ex prize shares, DBS collapsed retired of nan caller trading range, hitting caller each clip highs:

DBS Bank pays a 6.2% Dividend Yield moreover aft nan rally – higher than astir REITs

DBS Bank has committed to a $2.16 dividend per share.

With nan latest stock value of $34.79, that useful retired to a dividend output of 6.2% ­- which is really higher than astir REITs.

Dividend payout ratio is only astir 50%, truthful nan dividend output looks sustainable arsenic agelong arsenic location are nary large liking complaint cuts / recession (this is simply a large if I know).

So you tin really spot why investors are successful emotion pinch DBS Bank complete REITs correct now.

You’re getting astir nan aforesaid dividend yield.

And yet DBS Bank stock value keeps going up – while REIT prices look for illustration this:

Is DBS Bank overvalued astatine this price?

That being said, aft a caller breakout to each clip highs.

Is DBS Bank overvalued astatine this price?

Let’s return a look astatine immoderate valuation metrics.

Price to Book Ratio of DBS Bank

The accepted metric for valuing banks is Price / Book.

Adjusted for prize shares, DBS’s book worth is $21.0.

At $34.79, that translates into a mind boggling 1.65x book value.

You tin spot nan agelong word P/B floor plan since IPO for reference, wherever DBS slope trades coming is decidedly connected nan higher extremity of humanities valuations:

What benignant of superior gains is imaginable for DBS slope astatine this price?

Running immoderate speedy numbers:

  • If DBS goes backmost to Jan 2023 precocious of 1.7x book value, that is 3.0% upside
  • If DBS goes backmost to May 2007 precocious of 1.87x book value, that is 13.3% upside

Of people this excludes nan dividend, truthful full return could beryllium higher.

So going backmost to Jan 2023 highs isn’t really a batch of upside.

I suppose nan mobility investors person to inquire – will we spot DBS spell backmost to May 2007 valuations, aliases moreover higher?

Regime alteration for nan slope stocks owed to higher ostentation environment?

That said, I cognize galore investors deliberation that humanities numbers for banks are not applicable anymore.

For nan elemental logic that nan past 20 years was a low ostentation regime.

This meant that whenever you had an economical slowdown, liking rates were slashed to stimulate maturation – hitting slope earnings.

Once you person higher ostentation however, each that flips connected its head.

With higher inflation, you cannot really slash liking rates to stimulate maturation successful an economical slowdown, arsenic you consequence reigniting inflation.

This requires a wholly different attack to evaluating nan banks.

In nan past 20 years – you bargain DBS Bank erstwhile dividend is high, waste DBS Bank erstwhile dividend is low

Let’s put it this way.

In nan past 20 years, nan champion clip to bargain DBS was erstwhile nan dividend output was high, because that usually intends nan stock value has plunged.

I’ve marked successful nan floor plan beneath each nan peaks successful DBS dividend output – each coinciding pinch a driblet successful DBS stock price, and a awesome buying opportunity:

Where we are coming looks somewhat different.

DBS a period agone was trading arsenic precocious arsenic 7%+ dividend yield.

And yet nan stock value went connected to deed caller each clip highs.

Long communicative short – yes, I work together pinch nan statement that humanities numbers for nan banks are not accurate.

Inflation is simply a complete gamechanger for nan banks (and for investing generally).

What happens next? Interest rates to enactment high, aliases drop?

So we request to person immoderate thought connected nan way for ostentation (and result liking rates) going forward.

Latest US data is not pretty.

Set retired below, you tin spot how:

  1. Economic maturation is coming successful beneath expectations
  2. Inflation is coming successful supra expectations

 

This is simply a stagflationary script – and thing short of a complete disaster for nan Feds.

Cut liking rates successful this ambiance and watch ostentation / stocks soar.

Don’t trim liking rates, and watch GDP weaken into an US predetermination year.

Like I said, not pretty.

What is nan marketplace pricing successful connected liking rates?

Base lawsuit – marketplace is pricing successful only 1 liking complaint trim successful 2024.

While nan marketplace is now pricing successful a 0.6% chance of a complaint hike (which was considered blasphemy conscionable 3 months ago).

It was only arsenic caller arsenic Jan this twelvemonth erstwhile nan marketplace was pricing successful 7 liking complaint cuts successful 2024, truthful that’s conscionable a complete oversea change.

Higher liking rates are bully for banks (as agelong arsenic nan system holds up), hence nan beardown capacity for slope shares of late.

This has sent US 10 twelvemonth liking rates good supra 4.5% into nan threat zone.

If this keeps up, we whitethorn touch nan 2023 highs of 5.0%, which if you callback sparked a wide consequence disconnected successful consequence assets successful 2023.

My individual position connected ostentation and liking rates?

Some of you person asked maine wherever I spot ostentation 12 months from now.

The measurement I spot it – nan scope of possibilities going guardant is very high, and depends yet connected really US argumentation makers (Yellen and Powell) respond successful a US predetermination year.

If they easiness monetary policy, I could good spot ostentation soaring, and consequence assets from Bitcoin to Gold to stocks making caller highs.

If they support monetary argumentation tight, I could good spot a broader economical slowdown, and large selloff successful consequence assets.

It really depends connected really Yellen and Powell enactment successful nan adjacent 6 – 12 months.

This being a US predetermination year, I would beryllium inclined to opportunity they’re astir apt going to juice nan system successful 2H 2024.

But tin I norm retired Powell wanting to cement his bequest arsenic Paul Volcker 2.0 and keeping rates astatine 5.5% until ostentation is crushed, moreover astatine nan disbursal of a world economical slowdown?

Probably not.

The money this rhythm has been made betting against nan market

What I do cognize however.

Is that overmuch of nan money this rhythm has been made betting against marketplace expectations connected liking rates.

In Oct 2023, erstwhile nan marketplace was expecting liking rates to enactment precocious for longer, nan money was made taking nan other view.

In Jan 2024, erstwhile nan marketplace was expecting 7 liking complaint cuts successful 2024, nan money was made taking nan other view.

Now – nan marketplace is again expecting liking rates to enactment precocious for longer.

And nan measurement I spot it, nan measurement assets are priced, nan risk-reward favours taking nan other view.

If nan marketplace is pricing successful only 1 liking complaint trim successful 2024, I spot amended money to beryllium made taking nan position that much cuts are successful store.

That being said, successful nan contiguous term, Singapore 10 twelvemonth liking rates person deed 2023 highs.

While nan value action connected US momentum stocks has been very mediocre of late, pinch important nonaccomplishment successful momentum for Crypto / FAANG stocks.

So immoderate short word be aware is warranted until May / June, arsenic I shared connected FH Premium.

What do nan banks themselves expect? DBS Bank, OCBC, UOB

Coming backmost to nan banks.

What do nan banks themselves expect going forward?

To sum up views from DBS / UOB / OCBC slope guidance teams:

  • Flat indebtedness maturation (low azygous digit)
  • Cautiously optimistic that system has bottomed and will prime up
  • Net liking separator to enactment precocious contempt little liking rates (because of little backing costs)

If nan outlook from nan banks plays out, I suppose you won’t spot overmuch activity successful nan slope stock price, arsenic they are apt to enactment level astir existent prices successful this scenario.

But nan 6% dividend will apt beryllium maintained, which I suppose isn’t that bad a woody arsenic REITs would apt spot further downside successful this script (rates staying high).

BTW – we stock commentary connected Singapore Investments each week, truthful do subordinate our Telegram Channel (or Telegram Group), Facebook and Instagram to enactment up to date!

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At 6.3% dividend yield, Buy much DBS Bank banal aliases sell?

Earlier this twelvemonth – I wrote a bid of articles sharing that I had turned much bullish connected nan banks.

The reasoning past was that nan premature pivot from Powell / Yellen (in precocious 2023) would lead to an acceleration successful economical growth, and a resurgence successful inflation.

This would mean a much resilient economy, and liking rates to enactment precocious for longer.

Fast guardant to today, and I deliberation a batch of what I said successful Jan, has played retired (or is successful nan process of playing out).

And I deliberation a batch of this result is already baked into DBS’s stock value astatine 1.65x book value.

Sure – nan breakout of DBS slope banal is notable and suggests nan short word could beryllium bullish.

But arsenic a bargain and clasp for nan adjacent 12 – 18 months?

I deliberation DBS looks rather pricey astir here.

Is it only DBS Bank that is “richly” valued, aliases aforesaid for OCBC and UOB Bank?

For nan record, these are nan valuations of OCBC and UOB:

Bank

Price to Book

Dividend Yield

OCBC

1.2x

5.6%

UOB

1.2x

5.2%

DBS

1.65x

6.2%

So you whitethorn reason that this “rich” valuation is unsocial to DBS Bank because of their precocious dividend output and nan gimmicks they pulled astir nan prize shares.

In which lawsuit 1 action is to move from DBS to UOB / OCBC aft nan short word rally plays out, to rotate into nan little overvalued banks.

Or… bargain a Bank ETF?

Interestingly OCBC is launching a caller slope ETF, that invests successful banks each crossed nan APAC region and promises a minimum 5% dividend output for nan first 2 years.

I wrote astir this successful yesterday’s article, and it is an absorbing replacement to buying azygous slope stocks.

It gives you important geographical diversification, for illustration pinch vulnerability to Japanese banks which are connected a different constituent successful nan liking complaint cycle.

You tin spot nan reappraisal successful yesterday’s article – worthy a look if you are bullish connected banks, but don’t want to conscionable bargain nan DBS / OCBC / UOB combo.

Closing Thoughts: Hope for nan best, hole for nan worst

The measurement I spot it.

The scope of possibilities going guardant is very broad.

In 12 months time, we tin easy person 5% inflation, aliases we tin easy person deflation successful a world economical slowdown.

Ask 5 different economics professors and you’re going to get 5 different views, each of which are plausible.

It’s each going to travel down to what Yellen / Powell do successful a US predetermination year.

Because of that, I deliberation you want to position for some scenarios.

Have a information of your portfolio that does good pinch 5% ostentation (gold, Bitcoin, stocks, rate etc).

Have a information of your portfolio that does good pinch deflation (cash, bonds, perchance REITs owed to nan little liking rates etc).

Personally I proceed to tally dense rate levels aft derisking nan past fewer weeks.

But I will apt usage immoderate short word sell-off to summation vulnerability to nan marketplace going forward.

My individual position is that argumentation makers are going to easiness monetary argumentation successful 2H 2024 heading into nan elections, which could beryllium bullish for consequence assets. But of people I can’t norm retired nan different utmost (where they don’t ease), truthful I want to besides hedge for that outcome.

In immoderate lawsuit I conscionable updated nan FH Stock / REIT watchlist pinch nan names I americium willing to prime up during this sell-off, and unsmooth value targets.

My afloat portfolio pinch play updates is besides shared connected FH Premium, truthful do motion up if you are keen.

I deliberation location are tons of awesome opportunities successful this market, and I would beryllium utilizing nan sell-off to adhd to positions.

This article was written connected 26 April 2024 and will not beryllium updated going forward.

For my latest up to day views connected markets, my individual REIT and Stock Watchlist, and my individual portfolio positioning, do subscribe for FH Premium.

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