"DBS has stayed consistently as our top pick within the local financial sector for the past three years, and with its well-articulated medium-term dividend strategy," states Lee in her Oct 13 note.
As the bank has a policy of paying quarterly dividends instead of semi-annually, it has attracted many long-term investors seeking regular dividend income and high dividend yields.
With its year-to-date gain of 23.2%, DBS has outperformed the broader Straits Times Index's 16.9%.
Lee believes that investors have already imputed prospects of lower rates into the bank's earnings outlook for FY25-FY26.
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The 3-month SORA rate has declined from 3.07% as at the end of 2024 to about 1.43% currently. Similarly, the Singapore 6-month T-bill rate has also come off from 3.02% to 1.44%.
On the flipside, lower rates also mean that the ample liquidity in the market will continue to seek out better returns, which suggests that while net interest margins will be lower, DBS may enjoy higher fee income from wealth management. Similar growth is seen in its credit card and other income-linked businesses.
Also, global trade tensions and headwinds remain, but Singapore banks have proven to be fairly resilient, largely due to healthy balance sheets and low non-performing loans.
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"As DBS is currently trading close to our fair value estimate, and purely on that basis, we are downgrading it from Buy to Hold," says Lee.
At its current price of around $54, and assuming a dividend payout of $3, DBS is providing an attractive dividend yield of 5.6%, says Lee.
