Big 3 Local Banks — DBS, UOB, OCBC — See Double-Digit Increase in Profits. Here's How to Get In On Those Gains.

The Big 3 blue-chip stocks in Singapore saw a spike after double-digit increases in profits. Should you invest in bank stocks to diversify your investment portfolio?
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The Big 3 – DBS, UOB and OCBC – enjoyed a good run last year, with all three local banks posting double-digit profits for 2022. The main driver for the stellar results was, of course, heightened interest rates, a trend that is expected to continue – albeit with some slowdown – as the year unfolds.

Unsurprisingly, this has caught the attention of investors, although some skittishness were observed, as reflected in share prices. Despite the record-breaking performance posted by the banks, share prices hardly budged from their all-time highs in mid-February. In fact, at the time of writing, share prices for all three banks have fallen by between 7% to 8%.

This is perhaps a reflection of low market confidence given the gloomy macroeconomic outlook, continued stiff competition and expected slowdown in interest rate hikes – in February, the Fed raised interest rates by 25 basis points, instead of the more aggressive 50 to 75 basis points seen in previous rounds.

Is it time to add DBS, UOB and OCBC to your investment portfolio or increase your holdings in these bank stocks?

How Did DBS, UOB and OCBC Fare in 2022?

Here’s a summary of how the Big 3 did in 2022, as told through net profits year-on-year.

DBSQ4 2022: +69%
FY 2022: +20%
UOBQ4 2022: +37%
FY 2022: +18%
OCBCQ4 2022: +34%
FY 2022: +18%

DBS had the strongest performance, with a 69% jump in net profits for the fourth quarter, and a 20% net profit increase for the full year. Both of these were new records for the bank.

UOB and OCBC posted smaller – but still exciting – gains in net profits for Q4 of 37% and 34% respectively. Both banks saw full year profits grow by 18% over the previous year.

Related: Best Online Brokerages and Trading Platforms in Singapore 2023

What Does This Mean For Investors?

As mentioned earlier, the spectacular results didn’t lead to a price rally in the three stocks. But that doesn’t really matter, as share prices aren’t the full story when it comes to The Big 3.

The true value of owning DBS, OCBC and UOB bank stocks come from their status as consistent passive income producers, given their good track record as dividend-paying stocks.

In fact, these three stocks consistently rank in the top 15 among dividend-paying blue-chip stocks in Singapore. This renders them solid options if you’re seeking to build passive income and want to diversify your investment portfolio with bank stocks.

Here’s how investors stand to gain from the double-digit profits posted in 2022.

Shareholders of DBS will receive two dividend payouts for the first quarter of 2023 – a regular dividend payment of S$0.42 per share, and a special dividend of S$0.50 per share. The bank paid out S$0.36 per share every quarter last year.

Meanwhile, UOB – which pays dividends semi-annually – announced a final dividend price of S$0.75 per share. For 2022, the bank paid out S$0.6 per share, twice during the year.

As for OCBC – another semi-annual dividend stock – the bank raised its dividend payment to S$0.40 per share for the first payout in 2023. The dividend paid out twice last year was S$0.28 per share.

The Big 3 have always been – and still remain – a solid option for stable dividend returns. This is further shored up by Singapore’s robust status as a leading financial and banking hub for the world, and the consistent track record shown by these three dividend-paying stocks.

How to Add Bank Blue-Chip Stocks to Your Portfolio

1. Purchase DBS, UOB and OCBC Shares Directly

If you’re comfortable with investing on your own, you can purchase shares of DBS, UOB and OCBC via an online broker, and hold them to share in the profits.

As dividends are paid out on a per-share basis, you can build up the number of shares you hold at your own pace, You can also reinvest your dividend payouts to buy more shares and further build your holdings.

Note that buying individual stocks is inherently more risky, and you will experience higher volatility in the value of your portfolio. However, don’t forget that passive income takes time to build, so approaching these stocks with a long-term mindset is useful in avoiding rash decisions.

2. Invest in Local ETFs

If you prefer not to deal with price volatility, another option is to invest in locally listed ETFs that include the Big 3 banks in their holdings. ETFs combine a basket of different stocks and securities, which makes them inherently more diversified, and thus less volatile than individual stocks.

One such ETF is the SPDR Straits Times Index ETF (SGX: ES3), which tracks the top 30 SGX-listed companies. DBS, UOB and OCBC are the top three holdings in this ETF, together taking up around 44% of the fund. The fund has a low expense ratio of just 0.3%, making it a low cost option to consider.

Similarly, the Nikko AM STI ETF also tracks the same top 30 companies on the Straits Times Index, and offers the same expense ratio of 0.3%.

For an ETF with a wider geographical scope, consider the Principal FTSE ASEAN 40, which tracks the top performing countries in Singapore and the surrounding countries.

As at August 2022, DBS, OCBC and UOB are the largest, second-largest and fourth-largest holdings in the fund (with Indonesia’s Bank Central Asia in third place). This ETF is slightly more costly though, with an expense ratio of 0.52%.

Related: Best Online Brokerages for ETF & Unit Trust Trading 2023

Want to find more bank-based ETFs or blue-chip bank stocks to add to your portfolio? You’ll want to work with a reliable broker. Read our recommendations on the best online brokerages in Singapore to find the ideal one for you.

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Cover Image Source: Reuters