The market obsession is with capital gains for stocks, hoping to bag the next buyback hero of a company or a plump takeover target. Returns have been long forgotten and when we think of returns, Reits and Bonds come to mind.
When most of us think about returns on stocks, our minds would gravitate to the blue chips and the bellwether names. Out of this group, banks are left out ! Banks = GFC = Low Yields = High Risk
Investors would buy Coco bonds, under taking huge loss sharing responsibilities and sleep sound rather than look at bank shares.
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That is perhaps the reason for my personal astonishment the revelation by a good friend, who happens to be a lawyer, that Chinese banks are paying good dividends.
My skepticism rose, how good can it be ? Cannot be better than Reits surely ?
I decided to do some rough numbers, pulling out a short list of banking and financial services stocks and the top dividend yields we are looking at.
I then wondered if it has anything to do with the risk free rate of the country, for Australia and China, which both feature prominently on the list of top 30, have much higher than the US and Europe and Singapore’s ZIRP (Zero Interest Rate Policy).
Then again, Switzerland is close to negative rates and 2 swiss names are up there.
I added a first column of the Price/Book ratio of the company. This is useful in helping us ascertain the fair value of the share price, particularly for banks. The Book Value calculated using the total tangible assets of the company (minus goodwill). Thus the lower the Price/Book, the fairer the price. Yet there are obvious reasons why some ratios are below 1.00 – banks facing significant and yet undeclared/disclosed asset impairments, for instance.
Singapore’s 3 banks and their 12 month gross dividend yields.
These are not bad at all. The average over 230 names is just at 2.22% and the lowest is Citibank which paid just 0.08% in dividends, followed by Bank of America at 0.26%. Both US banks have vulnerable looking Price/Book ratios of 0.75, severely undervalued ? or more lawsuits ahead ?
Now back to China and my friend’s observation that Bank of China H-shares 3988 HK) , ICBC A-shares (601398 CH), ICBC H-shares (1398 HK) and China Construction Bank H-shares (939 HK) are giving us 6-7% returns.
[soon we should be able to buy the onshore A shares as well]
I called Zico and, for the equity expert that he is, he was surprised as well. He says worth taking a look pronto. He has been riding on his China TaiPing Insurance (966 HK) and Tencent (700 HK) without realising that boring old top tiered State Owned Banks are paying up.