Income investors are lucky to have numerous opportunities to purchase strong, dividend-paying stocks in Singapore’s stock market.
These dividends have the added benefit of not attracting personal taxation, making them a great source of additional cash flow to supplement your earned income.
One such company is DBS Group (SGX: D05).
Singapore’s largest bank has been a reliable dividend payer over the years.
The blue-chip group has consistently paid out higher dividends since the pandemic.
Let’s find out more about the lender and how it can potentially return more capital to shareholders.
A record-high net profit
DBS reported a stellar set of earnings for the first nine months of 2024 (9M 2024).
The lender is riding high on surging interest rates that have helped it to grow its net interest income.
For 9M 2024, total income rose 11% year on year to S$16.8 billion on the back of a 5% year-on-year increase in net interest income to S$11.2 billion.
Fee and commission income climbed 27% year on year to S$3.2 billion, buoyed by higher wealth management fees and an increase in credit card spending.
Profit before allowances increased by 10% year on year to S$10.3 billion while net profit improved by 12% year on year to S$8.8 billion, a record high for the bank.
Net interest margin for 9M 2024 remained resilient at 2.13%, dipping just slightly from 2.16% in the previous corresponding period.
Management also announced the establishment of a new S$3 billion share buyback programme where shares will be purchase in the open market and then cancelled.
Dividends bonanza
DBS has demonstrated its willingness to return capital to shareholders in the form of dividends.
The lender declared a quarterly interim dividend of S$0.54 for the third quarter of 2024, bringing 9M 2024’s dividend to S$1.62 per share.
In 2023, the bank paid out a total dividend of S$1.75 per share, adjusting for the 1-for-10 bonus issue that occurred earlier in February 2024.
That year alone, DBS raised its quarterly dividend from S$0.382 in the first quarter to S$0.491 in the final quarter.
For 2022, the bank paid out an annual ordinary dividend of S$1.364 and also a special dividend of S$0.455, bringing the total dividend to S$1.818.
This was an increase from 2021’s total dividend of S$1.091 which was already a step up from 2020’s S$0.791.
As a reminder, DBS was instructed by the Monetary Authority of Singapore in 2020 to limit its dividend payments to 60% of the prior year’s dividend payment as the pandemic hit Singapore’s shores.
Excess capital
These consecutive years of dividend increases have rewarded patient investors who have held on to DBS’s shares since the pandemic.
But there are indications that Singapore’s largest bank could be poised to pay out even more.
Bloomberg Intelligence analyst Rena Kwok believes that even after conducting the share buyback, DBS will have around S$6 billion of excess capital.
This translates to around S$2.10 per share in excess capital based on a share capital base of 2.84 billion shares.
During its Investor Day session last year, DBS also communicated its intention to increase its dividend per share by S$0.24 per year (i.e. S$0.06 per quarter) as a baseline scenario, barring unforeseen circumstances.
Based on the information above, there is a high chance that DBS has room to either increase its base dividends, or pay out a special dividend for the final quarter of 2024.
Interest rates may stay higher for longer
There could also be more good news for the bank’s earnings as interest rates look poised to stay higher for longer.
When interest rates hover at high levels, the bank benefits from having a high net interest margin which translates to higher net interest income.
The US reported stronger-than-expected economic data recently and this data point, combined with fresh remarks from the Federal Reserve’s chairman Jerome Powell, seem to imply that rates will stay elevated.
With Donald Trump winning the Presidential Election, investors are also expecting many of his policies to be inflationary.
Should inflation remained stickier than expected, this may also prompt the US central bank to rethink its economic easing policy.
DBS could also see its total income benefit from increased non-interest income.
CEO Piyush Gupta expects non-interest income growth for 2025 to be in the high-single digits year on year, led by higher wealth management fees and treasury customer sales.
Get Smart: A good chance for higher dividends
All signs are pointing to a high chance that DBS group will increase its dividends.
The bank is also exploring different ways to return capital to shareholders by establishing a share buyback programme.
Patient investors who stay the course with DBS can expect to be amply rewarded in the years ahead.
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Disclosure: Royston Yang owns shares of DBS Group.
