Oversea-Chinese Banking's (SGX:O39) Shareholders Will Receive A Bigger Dividend Than Last Year

Oversea-Chinese Banking Corporation Limited's (SGX:O39) dividend will be increasing to S$0.25 on 26th of August. The announced payment will take the dividend yield to 3.3%, which is in line with the average for the industry.

See our latest analysis for Oversea-Chinese Banking

Oversea-Chinese Banking's Earnings Easily Cover the Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, Oversea-Chinese Banking's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 5.9%. If the dividend continues on this path, the payout ratio could be 38% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was S$0.30 in 2011, and the most recent fiscal year payment was S$0.41. This implies that the company grew its distributions at a yearly rate of about 3.1% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Oversea-Chinese Banking May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 4.5% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, Oversea-Chinese Banking could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Oversea-Chinese Banking's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Oversea-Chinese Banking that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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