HSBC (HSBC 0.15%), which was founded in Hong Kong in 1865, is one of the world's largest banks. It serves over 39 million customers the world over and currently has a dual primary listing in Hong Kong and London.
My colleague Jay Yao believes its shares look cheap but I think otherwise. It is true that at its current share price of HK$57.25, HSBC has a tasty dividend yield of close to 7%. However, its dividend track record is not that tasty. The bank has been paying dividends that have been static for the past five years.
In 2014, HSBC declared a total dividend of US$0.50 per share. That rose to US$0.51 per share in 2015 and it has stayed stagnant from then till 2018. Overall, the dividend increase was just 2% over the last five years.
If you're a dividend investor, why should you settle for a 2% increase in payouts over the years when you can have more?
Enter this Singapore bank
Just over 2,000 km away on the sunny island of Singapore, there's a bank called DBS Group Holdings Ltd (DBSD.Y 0.40%).
The largest bank in Singapore was founded in 1968, just three years after Singapore's independence. In a short 50-odd years, the bank has become a force to be reckoned with.
In 2019, DBS became the first bank in the world to hold three global best bank awards at the same time. It clinched the "World's Best Bank" award given by Euromoney this year. The accolade comes hot-on-the-heels of two other awards it won in 2018 – "Global Bank of the Year" from The Banker and "Best Bank in the World" from Global Finance.
It's no mean feat, considering the competition it has the world over, including that from HSBC, which has been around far longer than DBS has.
Show me the dividends
It's not surprising that DBS is setting new records, including that of higher earnings. In 2018, the bank set a new net profit record of S$5.63 billion. The growing earnings over the years have certainly supported its dividends.
DBS's dividends have climbed by over 100% in all, from S$0.58 per share in 2014 to S$1.20 per share in 2018. In terms of annualized growth, it's around 20%. The dividend growth from DBS triumphs HSBC's many times over. Yet there could be more to come from DBS.
The bank commented in its 2019 first-quarter earnings released earlier this year that its "policy of paying sustainable dividends that rise progressively with earnings remains unchanged."
Therefore, as long as profits keep up in the years to come, DBS shareholders can expect to receive increasing dividends.
The Foolish takeaway
DBS' current dividend yield at 4.9% doesn't seem that enticing when compared to HSBC's 7%. However, with the rising dividends from DBS, the yield on cost for investors could reach more than 7% in the years to come. There's a high chance of this happening as DBS has what it takes to ride on the coattails of the growing Asian economy.
A version of this article originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en.