Should buy DBS now to enjoy 5.9% yield?

Buffet once said “Only buy something that you are perfectly happy to hold if the market shuts down for 10 years.” One such stock for most Singaporeans is DBS (D05.SI).

At the moment of writing, the last done for DBS is 20.20. The dividend yield will then be 1.20/20.2 = 5.9%. Is it a good time to buy now or is it a falling knife?

The case to wait

  1. Poor growth outlook till end of the year. Likely recession in US and in many asian countries in 2020.
  2. Demand for loans may fade in a prolonged economic slowdown.
  3. Fed may cut rates aggressively, with rates staying near 0 for the rest of the year. Net interest margins (the profit they make by lending the money they borrowed from depositors) will be squeezed.
  4. If NPL (non-performing loans) spike, it will be bad.
  5. The last time Fed interest rates was near 0, DBS price was about $13.

On 9 Mar, Citi Research downgraded the 3 local banks to “sell”.

    • The target price for DBS is $17.50, down from $24.40.
    • For OCBC, its $8.85 from $11.
    • For UOB, its $19.30, down from $$24.40.

These prices may be possible levels of support. But will it get even cheaper as the world panics?

 

The case to buy

DBS current PE ratio is at 10 year low.

DBS current Price to Book (NAV) ratio is at 10 year low.

DBS current Dividend yield of near 6% is juicy

Retail, tourism, and restaurant-related SMEs will be most affected. However, I do not think the 3 local banks have much exposure to SMEs.

Downturn due to Covid-19 likely to last 1 year only. When vaccination and a cure are invented, life as we know will resume.

Fed may raise interest rates in 2021 (according to Citi research). In the long scheme of things, this may be an opportunity to buy.

DBS has been buying back their shares almost daily.

  1. 12 Mar, bought 1,300,000 shares at average price of 20.33
  2. 11 Mar, bought 1,500,000 shares at average price of 21.19
  3. 10 Mar, bought 2,200,000 shares at average price of 21.30
  4. 9 Mar, bought 1,000,000 shares at average price of 21.38
  5. 6 Mar, bought 650,000 shares at average price of 23.06
  6. 5 Mar, bought 500,000 shares at average price of 23.76
  7. 4 Mar, bought 500,000 shares at average price of 23.91
  8. 3 Mar, bought 500,000 shares at average price of 24.28
  9. 28 Feb, bought 500,000 shares at average price of 24.37
  10. 27 Feb, bought 450,000 shares at average price of 24.67
  11. 26 Feb, bought 800,000 shares at average price of 24.75

 

A simple way to enter

Averaging down is a simple way to enter.

Example, if you are slightly bullish, split your warchest into 4 equal portions. Everytime DBS drops 10%, you enter one portion.

If you are very bearish, split your warchest into 20 portions, and average down.


  • I'm a remisier with Maybank Kim Eng, and as a bonds and REITs investor myself, I guide my clients to build resilient bonds and REITs portfolios. If you like to be guided, please open a trading account to become my client; It's free!
  • WealthLions is my blog where I journal my trading ideas and share my opinions about the markets. If you like to be kept posted of my new blog posts and events, please subscribe to my mailing list. No spam, I promise.