With share prices that are trading under expectation, and better-than-expected dividend yield, OCBC Bank could be well worth adding to your portfolio.
The Overseas Chinese Banking Corporation - more popularly known as OCBC Bank - was created out of the merger of three different banks way back during the Great Depression in the 1930s.
It has since built an enduring track record, establishing a global presence from its headquarters in Singapore, and clawing its way up to become the second-largest bank by assets held (S$521.3 billion) here.
The group’s strong performance has made it a favourite among blue-chip enthusiasts, mainly for its consistently strong dividend yield that outperforms that of even top-placed rival DBS.
Considering whether you should add the stock to your portfolio? Well, let’s dive in for a closer look.
Here’s what we’ll learn in today’s post:
- OCBC Bank share prices in the past five years
- How much dividends will I receive?
- What risks do I face?
- What does the future hold for OCBC Bank?
OCBC Bank share prices in the past five years
|CapitaLand (O39)||Share price|
OCBC Bank’s share price action has been holding steady in the past five years, except for when a little black swan reared its ugly head and knocked the entire world flat in one fell swoop. From a five-year all-time-high of S$13.80, share price plunged to as low as S$8.50 when COVID-19 took hold around the world.
Happily, OCBC Bank share prices have since mounted a convincing rebound, breaching the S$12-mark at time of writing. This is about a dollar shy of the previous all-time high - not bad, all things considered.
While the continued strong performance of the banking sector in Singapore undeniably supplied some tailwinds, the group’s solid business fundamentals also played a starring role.
Between 2009 and 2018 the group saw robust growth in several core areas including - loans and bills receivables (13.62% CAGR); net interest income (8.51% CAGR); fees and commission income (12.04% CAGR); and total income (8.09% CAGR).
How much dividends will I receive?
|Gross dividends (cents per share)||15.9||43.9||48||39||36|
For the last five years, OCBC Bank shareholders have been receiving dividends worth between 30-plus to almost 50 cents per share, earning a dividend yield of around 3% to 4%.
This dividend yield rate places O39 in 13th place among all blue-chip stocks with the highest dividend yields on the market, making it a good pick if your primary investment objective is to generate some passive income.
After a bumper year in 2019, dividends started falling in the following year. Judging by the rather anemic dividends announced for the first half of 2021, the downward trajectory looks set to continue.
OCBC Bank dividends payout schedule
|Dividends pay date(s)||29 Jun||5 Jun7 Oct||24 Jun3 Oct||4 Jun8 Oct||5 Jun18 Aug|
OCBC Bank follows a semi-annual schedule when paying out dividends to shareholders. The pay dates usually take place once in June, and once sometime later in the year - mostly in October.
The extra funds could come in useful for a mid-year getaway (yes, as far as Sentosa Island, which is just about the best we can do in 2021) or to pad your Christmas budget.
What risks do I face?
Here’s a snapshot of OCBC Bank’s price action in the past five years.
Putting aside the trough between March and November 2020 brought on by COVID-19, we see OCBC Bank charting a general upward trend.
From this, we can conclude that while OCBC Bank is a household name and major player in Singapore, it is not nearly large enough to escape the effects of a serious macroeconomic crisis like a life-changing pandemic.
Another observation to be made is that between its all-time high of S$13.80, stock price pulled back to a consolidation phase in the S$10.50 to S$11.80 range. That’s a heart-stopping plunge of as much as 21.7% - a rate of change that may be too volatile for those with lesser appetite for risk.
However, if you consider that OCBC Bank is an up-and-coming player in the competitively Singapore banking sector, you may be inclined to overlook these weak points in favour of bullish longer-term prospects.
What does the future hold for OCBC Bank?
Perhaps the most important thing to remember about OCBC Bank is that despite its status as one of Singapore’s top three banks (alongside DBS and UOB), its share price remains relatively low.
At the time of writing this article, OCBC Bank is trading at around S$12 per share, which is significantly lower than DBS (S$13.14) and UOB (S$26.27).
Yet, it has been providing higher dividends than some market favourites, including DBS, CapitaLand and SPH.
This characteristic strongly tips the scale towards “Buy” for investors who have limited budgets but seek high dividend yield.
OCBC Bank has done a good job defending its hard-won market share and is likely to do so given the continued high trust in banks among Singaporeans.
If the group can find a way to strengthen itself against macroeconomic shocks further down the road, its stocks should remain popular among investors for a long time to come.
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