OCBC forges ahead of peers in Q4 earnings, but DBS still leads in dividend yield 

SINGAPORE - OCBC Bank delivered a strong fourth-quarter earnings report, forging ahead of its local peers, whose earnings missed estimates and were down year on year.

Still, DBS Bank commands the highest dividend yield among the three and commits to a higher dividend and capital payout in the next two years, said analysts.

Macquarie Equity Research prefers OCBC over UOB and DBS for its strong earnings and wealth momentum.

Said head of Asean equity research Jayden Vantarakis: “OCBC delivered the best result among peers for fourth-quarter 2025, led by solid revenue generation and contained asset quality trends.”

OCBC also leads in wealth momentum among peers, he noted in a Feb 26 note, raising his price target by 11 per cent to $23.82 and reiterating an “outperform” rating.

Mr Vantarakis is also positive on OCBC’s new growth strategy, which includes capturing rising Asia flows and deepening its core market franchise. “Chief executive Tan Teck Long has identified where to invest in the franchise and drive higher growth.”

RHB on Feb 25 said that OCBC will also return any unutilised portion of its $2.5 billion capital return plan via special dividends in 2026. The bank upgraded OCBC stock to “buy” and lifted the target price to $23.45 from $21.30.

Mr Vantarakis said OCBC’s preference for special dividends over buybacks is “a slight positive” owing to the uncertainty around buyback deployment and focus on dividend yield.

The preference for special dividends “sets up for another year of about 60 per cent payouts”, he said. The lender has $780 million remaining under the $2.5 billion capital return commitment by 2026.

“OCBC has a 14 per cent Common Equity Tier 1 (CET1) target and targets rising return on equity, opening up the potential for further capital returns from the 2027 financial year onwards once strategic targets are quantified,” Mr Vantarakis added.

Morningstar associate equity analyst Kathy Chan said the bank may opt for special dividends over share buybacks if it does not fully deploy the remaining amount in 2026 and if the share price continues to stay strong for the year.

But OCBC shares are not cheap, she said on Feb 25, raising her fair value estimate to $20 from $18.50 to reflect stronger long-term earnings growth.

“We think the shares are slightly expensive compared with their intrinsic value, but decent shareholder returns should continue to support the share price,” she said, noting that OCBC has ample excess capital with a high CET1 ratio.

However, as the group focuses on its new corporate strategy and management said that they are likely to prioritise investments over shareholder returns as well as consider inorganic growth opportunities, the payout ratio could return to 50 per cent from 2027, said Ms Chan.

Morningstar assumes a 60 per cent payout ratio for 2026, but expects that to normalise to 50 per cent from 2027. It forecasts a dividend per share of 99 cents for 2026 and 86 cents for 2027, implying a yield of 4.6 per cent for 2026 and 4 per cent for 2027.

Analysts said that UOB’s earnings could rebound in 2026, given that credit costs normalised in the fourth quarter.

Total credit costs fell to 19 basis points from 134 basis points a quarter earlier, and below UOB’s guidance of 25 to 30 basis points.

“We estimate UOB’s earnings to improve by 23 per cent year on year, moving back close to 2024 levels. Third-quarter provisions were one-off, and fourth-quarter net non-performing asset formation for UOB normalised,” Mr Vantarakis said in comments to The Straits Times.

Macquarie maintained its target price of $41 with an “outperform” rating. UOB is a relative value play in the sector, said Mr Vantarakis, adding that the bank has a forward price-to-book ratio of 1.2 times.

Meanwhile, DBS’ expected price-to-book ratio in 2026 is 2.35 times while OCBC’s is 1.53 times. The price-to-book ratio is used by investors to evaluate if a company’s shares are fairly priced.

However, several analysts reiterated a “hold” on UOB, as its dividend yield trails behind that of DBS.

“While credit cost should normalise and this may lead to a decent rebound in earnings, there would still be about a 100 basis point dividend yield gap to the sector-leading yield of 5.5 per cent by its peer,” an RHB analyst said on Feb 25, with a new target price of $39.50 from $36.10.

With a target price of $40.90 on UOB, CGS International (CGSI) analysts Tay Wee Kuang and Lim Siew Khee noted that there is no additional capital return expected to bolster yield in 2026.

While UOB continues to execute its $2 billion share buyback programme, there is a lack of additional capital return initiatives after a total special dividend per share of 50 cents in 2025, CGSI said on Feb 24.

This could lead to a lower dividend per share of $1.70 forecast in 2026, which translates to an estimated yield of 4.4 per cent, CGSI added.

Analysts noted that downside risks include a weaker economic outlook for ASEAN and further credit deterioration, especially in the commercial real estate portfolio, which would drive higher provision expenses.

UOB management in its earnings briefing said that potential hot spots remain confined to the commercial real estate space in Greater China and the US and coverage is more than adequate to navigate any potential issues from these hot spots.

Ms Chan of Morningstar, which maintained its fair value estimate of $36 for UOB, said that the bank’s shares are somewhat expensive compared with their intrinsic value, but the ongoing share buyback programme should continue to support the stock. She reckoned that UOB may slow the pace of buybacks given the recent strong share price performance.

Earlier in February, analysts said that DBS is still one of the top dividend yield plays in Singapore.

Morningstar on Feb 9 noted that while DBS showed signs of weakening growth, dividends are still attractive. Fourth-quarter net profit fell 10 per cent year on year, as lower interest rates pressured net interest income.

DBS will pay a final dividend of 81 cents per share, bringing total dividends for 2025 to $3.06 per share, up 38 per cent from the previous year.

“Our 2026 dividend forecast of $3.24 per share continues to imply an attractive dividend yield of 5.6 per cent, which could continue to support the share price,” said Ms Chan, raising its fair value estimate to $50.

As DBS’ high share price may make it harder to buy back shares, increased dividends may be preferred, she added.

Ms Carmen Lee, head of equity research at OCBC group research, noted DBS’ commitment to higher dividend and capital payout in 2026 and 2027. “DBS still ranks among the top dividend yield plays in Singapore,” she said on Feb 9. OCBC has a “hold” rating on DBS, with a fair value estimate of $59.43.

Macquarie said a high dividend yield underpins DBS shares, but maintains an “underperform” rating at a target price of $48.67 due to a subdued earnings outlook and limited scope for consensus upgrades.

DBS guided for 2026 net profit to be slightly below 2025 levels, but total income to be around 2025 levels despite rate headwinds. Group net interest income is expected to be slightly below 2025 levels.

But the bank further expects the full-year impact of lower rates to be mitigated by deposit growth and to continue to capture hedging opportunities.

However, Mr Vantarakis said DBS’ hedging buffer is “less and less as time goes by”, adding that “this is one of the key reasons we are cautious on the stock”.

RHB said that out of DBS’ $210 billion fixed-rate assets, $80 billion is up for repricing in 2026, which DBS said could reprice at rates about 50 basis points lower than current levels.

Mr Vantarakis of Macquarie cautioned that there could be further net interest margin compression ahead for the banks.

“We anticipate three-month compounded Singapore Overnight Rate Average reaching 1 per cent in the middle of this year and averaging 1.1 per cent. This is below the banks’ guidance and reflects expectations of ongoing Singdollar strength.”