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Which Singapore Bank is the Cheapest Right Now?

Singapore banking stocks are cheap now. Here’s which bank I think stands out for investors based on its attractive valuation. – Singapore stocks

One of the most hated industries among investors now is the banking industry. There are many “good” reasons to worry about these companies, which include Covid-19, the US-China trade war, and more.

Given such pessimism, banking stocks are trading at cheap valuations as compared to other companies.

For me, it’s a good area for investors to search for investment ideas. After all, these big banks are unlikely to go anywhere in the next decade.

And this brings me to the main purpose of this article. Which of the major Singapore banks, DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation Limited (SGX: O39) and United Overseas Bank Ltd (SGX: U11), is the cheapest now?

I’ll try to answer the question by comparing the valuation metrics of the trio (at the time of writing). The valuation metrics I will focus on are the price-to-book (PB) ratio and price-to-earnings (PE) ratio.

The showdown

To begin with, DBS Group, OCBC, and UOB have PB ratios of 1.0, 0.8, and 0.9, respectively. The low PB ratios for OCBC and UOB suggest that both banks have lower valuations.

Next, DBS Group, OCBC, and UOB have trailing PE ratios of 12.7, 8.2 and 8.1, respectively. Here, OCBC and UOB have a lower valuation, as compared to DBS Group, thanks to their lower PE ratios.

Note that these ratios are calculated using the banks’ share prices at the time of writing: DBS Group at S$21.44, OCBC at S$9.22, and UOB at S$20.53.

Bank dividends

Traditionally, income investors like to hold stocks of these three banks thanks to their solid track records of paying sustainable dividends over long periods of time.

For this group of investors, they would also want to know which bank is offering the best dividend yield today. The respective dividend yields for DBS Group, OCBC and UOB are 5.7%, 5.7%, and 6.3%.

All three banks have a high yield of more than 5%, but UOB is the clear winner here with its 6.3% yield.

Foolish conclusion

In sum, all three banks are trading at an attractive valuation. In particular, OCBC’s and UOB’s shares are cheaper thanks to their lower PB and PE ratios.

But the clear winner here for me is UOB since it has the highest dividend yield among the three Singapore banks.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.

The Motley Fool Hong Kong Limited(www.fool.hk) 2020

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