RHB on Thursday (Feb 8) upgraded DBS to “buy” from “neutral” following better clarity on the lender’s commitment to shareholder returns.
On Wednesday, the bank proposed to raise dividend payouts and issue bonus shares to increase the pace of capital returns to its shareholders during the release of its fourth-quarter results.
DBS chief executive Piyush Gupta also expects there to be more opportunities to return capital to shareholders given the lender’s ample excess capital.
“Its focus on absolute dividend per share (DPS), versus payout, offers investors ‘bond-like coupons’ with yields that are now too good to ignore, in our view,” RHB said.
It also said management’s plan to grow DPS by S$0.24 per annum could be sustained for the next two to three years. There is also room for capital management initiatives like share buybacks, RHB noted.
The research team has raised its target on the counter to S$36.10 from S$34.70, which implies a potential upside of 10.8 per cent from the counter’s last trading price of S$32.57 as at 11.40 am on Thursday.
Shares of DBS were up 0.4 per cent or S$0.12 at the time.
DBS’ Q4 results also aligned with the research team’s expectations. The bank posted a 3 per cent drop in net profit of S$2.27 billion for the fourth quarter ended Dec 31, 2023, from S$2.34 billion in the same period last year.
The net profit took into account one-time costs from its acquisition of Citigroup’s Taiwan consumer banking business and a S$100 million corporate social responsibility commitment. Without these costs, net profit would have risen 2 per cent on the year.
The bank had also proposed a higher dividend of S$0.54 per share and a 1-for-10 bonus issue.
In its research model, RHB assumed an FY2024 DPS of S$2.16, which implies a payout ratio of 63 per cent, based on an enlarged post-bonus share base.
“This translates to a post-bonus yield of 7.3 per cent, which we think is too good to ignore for a large-cap, liquid stock,” RHB said. It noted that decoupling dividends from profitability should also help provide downside support to share price.
