OCBC's Dividend Payout Highlights Cautious Outlook
OCBC's payout ratio were below its peers, analysts noted. The bank defended its position, citing rougher markets ahead.
OCBC announced a dividend which amounted to a payout ratio of only 40 percent, which pales in comparison to peers which have raised their dividend payout to some 50 per cent of earnings, analysts observed. The bank on Friday said it would pay a total full year dividend of 43 Singapore cents a share, up 16 percent from a year ago.
OCBC group chief executive Samuel Tsien explained that this lower payout ratio is related to the bank's cautious stance, as the management team is observing risks unfolding, be they geopolitical developments or an economic slowdown.
In comparison, UOB had announced a total dividend that came up to S$1.20 per share for the full year, representing a payout ratio of about 50 per cent.
Acquisition Opportunities
To conserve retained earnings further, UOB has offered shareholders the option of getting dividends via scrip for the final dividend, which bucks the trend of its peers, who are paying all cash. These shares are to be alloted at a 10 per cent discount to the trading price.
«Should there be market opportunities that could be available, of which we are not looking at right now, we would also be able to expand our franchise along the lines of our corporate strategy,» Tsien said in a briefing.
Detrimental To Return on Equity
«We view OCBC's decision to cap dividend payout at 43 per cent plus invoking a scrip dividend, despite a Tier-1 capital ratio of 14 per cent, as likely detrimental to return on equity (ROE) prospects,» said Citi analyst Robert Kong in a report.
Although OCBC has guided that its ROE could recover to 12 per cent in 2019, compared to 11.5 per cent now, Citi analysts downgraded the stock to «neutral», and cut its target price to S$12 from S$12.80. Shares of OCBC fell by 13 cents to S$11.26 this morning, extending the 1.56 percent fall from last Friday.
