UBS Group AG and Citigroup Inc. are in odds on how Singapore’s move to cap dividend payouts at the nation’s banks will perform for equity investors.Citigroup claims that the move will be seen negatively by shareholders as dividend return is a significant element when considering purchasing bank stocks. UBS sees the fundamental bank’s movement as wise in this context of the coronavirus pandemic without a danger to the sustainability of payouts.
Singapore’s central bank on Wednesday ordered creditors to cap off their 2020 dividends at 60% of the year’s rates, a move consistent with other international central banks’ activities in the aftermath of the outbreak. The creditors control the largest weighting in the MSCI Asean Index and are set to announce their quarterly earnings per week.
Shares of those 3 creditors extended recent losses on Thursday. DBS Group Holdings Ltd. and Oversea-Chinese Banking Corp. each fell more than 3%, while United Overseas Bank Ltd. dropped 2.8% as of 10:54 a.m. in Singapore.READ: Singapore Banks Drop Following Regulator Caps 2020 Dividend Payouts
Here’s the reason why the investment banks disagree over the prognosis for banks:‘Buying Opportunity’“The short term and prudent nature of this measure does not raise any question marks on the long-term sustainability of dividends,” UBS Group analyst Aakash Rawat wrote in a notice. “Investors with a slightly longer-term horizon are likely to see this weakness as a buying opportunity.”The effect seems best for DBS, which investors see as a larger proxy for earning dividend income compared to its peers, he composed.
In accordance with Sanford C. Bernstein, a cap instead of outright postponement indicates MAS is sufficiently familiar with all the banks’ capacity to ride throughout the year. Investors must keep holding the stocks as banks are most likely to restart payouts at 2019 amounts whenever they’re capable, analysts Kevin Kwek and Pranav Gundlapalle wrote in a notice Wednesday.‘Viewed as Negative’“This will be viewed as negative for the banks as the dividend yield is considered an important component of the investment thesis for owning these names, especially DBS,” Citigroup analysts Robert Kong and Weldon Sng composed in a note.The reduction dividends will increase the annoyance of a sharp sequential narrowing of net interest margins and may immediate banks into front-load provisions, they wrote.Prefer SGX into BanksJefferies Financial Group Inc. favors stocks of Singapore Exchange Ltd. to all those of the nation’s banks mentioning the bourse’s “similar but fully underwritten cash yield,” based on some note.The statement will weigh on sentiment as return becomes capped at about 4% versus 6% before, although investors must recall the powerful capital positions of their banks, analyst Krishna Guha wrote.
The broker downgraded DBS to hold from buy, decreasing its dividend quotes by 29% to its 2020 year.(Upgrades stock costs in fourth paragraph, adds Sanford C. Bernstein’s perspectives in eighth paragraph.)
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