An Investor's Ultimate Guide to United Overseas Bank Ltd's (SGX: U11) Dividends

United Overseas Bank Ltd(SGX: U11), or UOB for short, is one of Singapore’s three leading listed banks.

Here’s a deep-dive into UOB’s dividend yield, dividend history, and more importantly…

… its dividend sustainability to understand if the bank can continue paying rising dividends.

UOB’s shares last traded at S$25.67 each on 21 September.

At that price, UOB’s trailingdividend yieldwas 3.9%.

In comparison, theSPDR STI ETF(SGX: ES3) had a lower distribution yield of 2.7% on the same day.

The SPDR STI ETF is anexchange-traded fund (ETF)that tracks the performance of Singapore’s stock market benchmark, theStraits Times Index(STI).

UOB is part of the STI and is itsthird-largest component at around 11%.

UOBDividend Amount and Payout Periods

UOB paid out a total dividend of 78.0 Singapore cents per share for its financial year ended 31 December 2020.

The bank’s annual dividend is split into two parts – one part (interim dividend) is given out for the second quarter and the other for the fourth quarter (final dividend).

Last year, UOB dished out a dividend of 39.0 Singapore cents per share each for its second and fourth quarters.

UOBScrip Dividend Scheme

The UOBscrip dividendscheme provides shareholders with the option of receiving their dividends in UOB shares instead of cash.

The bank last offered a scrip dividendfor its 2020 fourth-quarter.

Here are the various periods that UOB has offered scrip dividends to its shareholders:

UOBDividend History

Now, let’s look at UOB’s dividend payments from 2008 to 2020:

In 2020, UOB and the other banks had to curb their dividend payout after the Monetary Authority of Singapore (MAS) called on them tolimit their total dividendsper share for 2020 at 60% of 2019’s dividends as a pre-emptive measure.

Banks were asked to offer scrip dividends as well.

A year later, in July 2021, Singapore’s central banklifted the dividend restrictions entirely.

Thus for UOB’s 2021 second-quarter (results announced in August), the bank paid out 60.0 Singapore cents per share, up 54% compared to a year ago.

The UOB scrip dividend scheme was also suspended.

UOBDividend Policy

According to UOB’s annual report, the bank aims to “provide sustainable returns to our shareholders for their investment as we balance the long-term strategic growth opportunities and proactive management of capital”.

The bank plans to dish out 50% of its net profit as dividends (also known asdividend payout ratio), provided itscommon equity tier 1 (CET-1) ratio— a measure of a bank’s financial strength — is above 13.5%, and it has a stable outlook.

UOB’s CET-1 ratio has been above 13.5% over the last four years at least.

UOBDividend Sustainability

A company’s dividend sustainability is more important than its dividend yield since a high yield, while enticing, could also mean there are issues with its underlying business.

With that, let’s explore UOB’s dividend sustainability by exploring its dividend payout ratios from 2016 to 2020:

UOB’s dividend payout ratio has been conservative at around 50%. As such, its dividends are indeed sustainable.

Companies that pay below 100% of their earnings would leave some room for dividend increases in the future, even if their profits were to fall.$UNITED OVERSEAS BANK LIMITED(U11.SI)$