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What a great way to start a morning!
What a great way to start the week!
In my most recent blog, I talked to myself about my plan when it comes to fixed income.
However, I also mentioned that I have a significant exposure to equities as fixed income alone would not get us to financial freedom.
For most of us, this is the hard truth.
We must invest in bona fide income generating assets and businesses if we want to be financially free one day.
The decision to invest in DBS so many years ago has been paying dividends, literally.
Investing in OCBC a little later and then in UOB in the COVID-19 bear market has been very rewarding too.
Now, I wonder if OCBC and UOB might follow DBS and reward their shareholders a little better?
Let me try asking my mental bowling ball which thinks it is a crystal ball.
Compared to UOB, there is a better chance of OCBC following DBS in declaring a special dividend as OCBC's CET-1 ratio is more robust.
Still, if UOB wanted to, they could declare a special dividend too as their CET-1 ratio, although not as strong, is pretty decent.
Don't hold your breath though as this is what we got from a mental person asking his mental bowling ball for directions.
Coming back to DBS, a special dividend of 50 cents a share is pretty impactful to me.
This is especially when DBS is one of my largest investments today.
I think I might give myself a little treat.
Won't overdo it since 2023 still has a long way to go and we don't know how the rest of the year is going to turn out.
Like I shared in my blog on my full year 2022 passive income, I am still expecting zero growth in my 2023 passive income.
This is just me being realistic as some of my investments would probably be generating lower income for me.
CapitaLand China Trust has already reported a lower DPU, for example.
Oh, well.
Happy thoughts for now.
To all fellow DBS shareholders, hip hip huat ah!
Recently published:
1. SSB, T-bill, CPF and UOB ONE.
2. Changes to portfolio (Jan 23.)
References:
1. Largest investments updated.
2. 2022 passive income.
Latest YouTube video by AK:
Bloggy Award
23 comments:
DBS Group reported a higher-than-expected 68% rise in quarterly profit.
Singapore lenders are set to report their highest quarterly net interest margins in more than a decade on rising interest rates.
DBS Chief Executive Piyush Gupta said in the bank's results statement that interest rate increases are likely to moderate, but he doesn't expect rate cuts this year.
DBS, the first Singapore bank to report this season, said October-December net profit rose to a record S$2.34 billion.
The lender, which earns most of its profit from Singapore and Hong Kong, announced a special dividend of 50 Singapore cents per share.
Source:Bloomberg.
Hi AK, as a shareholder of dbs, am happy with the special dividend announcement too. But I am puzzled why the stock price dropped a little today on such good news? Can u talk to yourself about it?
Personally I think UOB is more likely to declare special dividend since I expect OCBC’s relative higher CET ratio to restrict it’s cashflow. It has higher CET ratios mandated by MAS, and I would expect it to have to spend more to attract depositors, compared to UOB and DBS
Hi zhenling,
There is no accounting for Mr. Market's mood swings and your guess is as good as mine.
My guess is that Mr. Market is concerned with possibly more Fed rate hikes which could lead to a recession in the largest economy in the world.
The probability of a return to more aggressive rate hikes has increased because of unexpectedly strong employment rate which continues to drive wage inflation in the USA.
As for our local lenders, I am happy whichever one decides to pay higher dividends.
That is the advantage of being invested in all three local lenders instead of trying to cherry pick. :D
Hi AK,
Congrats to u and all local banks investors (including myself ��). Barring unforeseen global economic situations, investors can (hopefully) expect DBS to sustain their dividend payout, or at least $1.68 per share core dividends payout for FY2023. Huat Ah! ����
https://www.theedgesingapore.com/news/banking-finance/dbs-head-not-concerned-about-13-bil-adani-exposure-10-bil-profit-goal-possible
Hi Eddy,
Gong xi gong xi indeed! :D
If nothing earth shattering happens, I too feel that 2023 should be a good year for all three local lenders.
They should have no issues bringing home the bacon.
Hopefully, OCBC and UOB pay higher dividends too which would offset the expected lower income distributions by some of the REITs in my portfolio.
Crossing fingers. :)
Hi AK,
Yes indeed, I reckon that both OCBC & UOB may also raise or payout special dividends too. As their last reported 9M2022 results have been good. So yes, fingers crossed! “)
Potentially, banks FY2023 financial results may see sustained or better results due to higher NIM/NII once the positive full impact of rising interest rates kicks in. Also the opening of China’s borders & trade. Not forgetting Southeast-Asian countries too.
Cheers!
Hi AK,
Yes indeed, I reckon that both OCBC & UOB may also raise or payout special dividends too. As their last reported 9M2022 results have been good. So yes, fingers crossed! “)
Potentially, banks FY2023 financial results may see sustained or better results due to higher NIM/NII once the positive full impact of rising interest rates kicks in. Also the opening of China’s borders & trade. Not forgetting Southeast-Asian countries too.
Cheers!
I'm keeping fingers crossed for OCBC this Friday too. After all, in 2022, they celebrated their 90th anniversary! Hoping that record earnings couple with suppressed dividend by gahmen during COVID previously will enable them to deliver a sweet anniversary present to shareholders!
Dear AK
Nice to see your post and can understand your elated feeling. The SG banks are my top three biggest holdings and I share your sentiments. However, the markets , have decided to look forward
That explains the drop today and this is perfectly understandable and exemplifies the adage “selling the good news”. The rising interest rates have no doubt helped but beyond this point, there are two possibilities. One is that rates go higher and thereby increase the chances of recession, the second is rates stay here and drop in the second half of 2023 with the fed reversing course.
Neither of these are favorable to the banks in the short run, relatively speaking. After going through the outlook statement as well as other points, the following are emerging
1- Funding costs have gone higher hand in hand with falling CASA balances, higher FD servicing costs and higher expenses
2- The NIM is probably nearing peak. Any further increase puts the chances of NPA moving higher thereby impacting profit
3- As expected, loan uptake including mortgage uptake has slowed down
4- 1.3 billion dollar exposure to Adani group, although this must be ok. Piyush spoke about this today and clarified
Overall, still the pluses outnumber the minuses
The three banks still remain buys and I will add ex dividend and wait for a pullback in the market
Not only are they safe even in a recession, their dividends will be maintained unless there is a major global shock like COVID. Additionally, their capital appreciation prospects are the best among the local stocks
Best wishes
Garudadri
Congratulations to all of you DBS shareholders. Other than special dividend, they also just put up a promo for 3mth FD at 4.88%. Promo code is SR1B
Hi Eddy,
I agree that our local lenders are all in a good position to pay higher dividends.
Just hope that OCBC and UOB are not too tight fisted. LOL.
OCBC should benefit from China's re-opening since they have a relatively large exposure to the Greater China market.
UOB should benefit from the relatively strong economies in South East Asia especially after buying Citibank's business here.
Huat ah! :D
Hi Deet,
An anniversary dividend from OCBC?
I like that idea very much.
90 cents special dividend for 90th anniversary, maybe?
We can always hope, right? ;p
Hi Garudadri,
Thank you so much for the very thoughtful comment.
I agree with all the points you have raised, good and bad.
There will be rough patches but if Mr. Market goes into a manic depression because of these, it is probably a buying opportunity.
"If you are in a wonderful business for a long time, even if you pay a little too much going in, you're going to get a wonderful result if you stay in for a long time." Warren Buffett.
Hi Yv,
I fast hand, fast leg after I saw your comment.
Unfortunately, the DBS promo code has expired. (TmT)
Still, thanks for sharing. :D
Hi AK,
I continue to be amazed by your investing ability. I know you often say "if AK can do it, so you can you"... but I am really doubtful that's possible, at least for me :P
I remember when you started buying the bank stocks. I was a little puzzled actually. Cos I thought interest rate go up, banks will have less loans to make, costs more for their deposits and thus probably be making less money? But of course, you were right!
Luckily I blind blind just follow you and buy a bit. Thank you! Of course now I wished I had bought more.
Hi AK,
As a dividend investor and a very small share holder of the three local banks, I am also happy with DBS' latest dividend payout, and looking forward and hoping for similarly generous payout from the other two banks.
However this generous payout will probably bump up my dividend income for the year only to see the dividend dip again the following year. That means next year I would be "disappointed!" 😅 Well, I guess its better to take the money now.
Among our three passive income streams, believe it or not, its the humble CPF that is giving us increasing interests year on year! That is, if you let interests compound.
I know you have said before that one cannot depend on the CPF for retirement. In contrast, my wife and I are planning our retirement lifestyle based on what we can get from our CPF savings.
We consider the passive income from our CPF our gold taps (combined for couple) as follows:
Gold Tap 1:
Annual Interest from our OA & SA : $60,000 (expected interest for 2023)
Gold Tap 2:
Annual CPF Life payout starting at 70 : $72,000
Our other taps
Silver tap 1:
SRS savings drawdown : $52,500 annually (I see myself working beyond 62, so SRS drawdown wont start till I retire)
Silver tap 2:
Medisave account savings : Use when needed
Bonus tap 1:
Dividend from stocks : $88,000 (2022 figure)
Bonus tap 2:
Rental income : $42,000 (2022 figure)
If our bonus taps continue to perform like they did last year & in previous years, we will let our CPF savings continue to compound.
In fact, as I am still gainfully employed at 62 (this year), I have been reinvesting all the passive income each year.
So we are planning our retirement lifestyle based on gold taps 1 & 2 (about $10,000 per month). Incomes from the bonus taps are bonus to be spent for gifting, buying a car, overseas holidays or most likely for reinvesting.
Hi csky,
Alamak, don't like that say. I shy.
To be fair, I am not right all the time but if I can be right 6 times out of 10, taking a leaf from Peter Lynch's book, I am happy enough. :)
I just checked my blogs and found that I started buying DBS in 1H 2016!
"In the non-REIT space, in 1Q 2016, some readers might remember that I bought DBS, DBS and more DBS."
Source: 1H 2016 income from non-REITs.
Time flies.
Still, your observation about the increasing cost of doing business is right as the banks will have to pay more eventually.
So, realistically, the speed at which they grow their earnings will slow down.
Banking is a cyclical business and we will probably have a chance to buy more in the future at lower valuations. :)
Hi MSI,
Thank you for sharing your plan in such great detail.
Your sharing will definitely be useful to many readers as it shows that it is never my way or the highway.
Of course, unlike you, I am unemployed and must pay myself CPF. (TmT)
I also do not have rental income but instead I pay large sums to my parents. (TmT)
See:
Inflation, passive income and updating my budget.
Not complaining since it is the path I chose.
Could have been worse, of course. ;p
Yes, I said that we should not depend solely on our CPF savings for retirement funding but that is if we have a somewhat higher maintenance lifestyle.
To be fair, you won't be depending solely on your CPF savings either since you have SRS savings, dividends and also rental income!
I am very happy to see that you are in a good place, financially. :D
Hi Ak,
Thank you for your reply. Thank you for your vote of confidence on my observation too.
I realize sometimes I may have gotten certain observation correct... but my analysis of when the consequence / expected outcome will happen and its impact on the stock is still quite far off 😅
Hopefully I will get better at some point of time.
Hi csky,
Diversity makes our world interesting.
However, in some instances, it also makes it confusing. ;p
Whenever I am confused, I just stick to my own analysis, for better or for worse.
We cannot make all the money in the world, I tell myself.
Just have to keep reminding ourselves that we can only hope to be right more often than we are wrong. :)
No special dividend in the end. But still 48 cents announced by OCBC today! Guess can't complain!
Oversea-Chinese Banking Corp. said its fourth-quarter net profit rose 34% on year due to higher net interest income.
Net profit for the period ended December was 1.31 billion Singapore dollars ($975.6 million), while net interest income was S$2.39 billion, up 60% from S$1.49 billion a year earlier, OCBC said Friday.
The bank's non-interest income fell 42% to S$615 million on-year, largely due to lower wealth management fees.
Its board has proposed a final dividend of 40 Singapore cents a share, up from 28 Singapore cents a year earlier.
Source:
https://www.morningstar.com/news/dow-jones/2023022316030/ocbc-4q-profit-up-34-on-net-interest-income-gains
Hi Deet,
Yes, I am not (too) greedy. ;p
An increase of 12c is still pretty impactful. :)
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