DBS & OCBC 1H 2026: Happily “Wrong” (To Buy or Not To Buy?)

Just last month, I trimmed roughly 20% of my DBS (SGX: D05) and OCBC (SGX: O39) stakes to fortify my cash buffer and optimise my CPF-OA yield spread.

I ended that post with a simple sentiment: I hoped the upcoming results would make me “regret” selling.

Well, the banks granted my wish.

Powered by a blowout quarter in wealth management fees, 2Q 2026 YOY net profits jumped 9% for DBS and an eye-opening 22% for OCBC.

With both banks still accounting for more than 10% of my portfolio, I am indeed happy to be “wrong.” The sheer momentum in fee income, especially OCBC’s staggering 51% YOY jump, was a massive pleasant surprise.

However, as prices touch new peaks, every investor sitting on cash is asking the exact same thing: “Can still buy, or not?”

I can’t offer personal financial advice, but let’s walk through how you can evaluate this decision using three key considerations:

• Business Fundamentals & Potential
• Valuation: Yield Compression vs. Dividend Growth
• To Buy or Not To Buy: Context is Everything

🎧  Prefer to listen to this analysis while you multitask? Stream the companion audio here, or scroll down to read.

Business Fundamentals & Potential

To evaluate whether today’s stock price is justified, you cannot just look backward at trailing 12-month data. You need to examine current momentum and project the run-rate to see what kind of earnings engine you are actually buying into.

Projections will never be 100% accurate. To estimate DBS and OCBC’s income and EPS for the next two quarters, I’ve based my model on the following assumptions:

• Net Interest Income (NII): Assumed to hold at similar levels in the second half as lower margins are offset by balance sheet volume growth.
• Non-Interest Income (Non-II): Assumed to benefit from ongoing favourable market conditions. For DBS, I’ve taken the mid-teen guidance by CEO Tan Su Shan as 15%. For OCBC, I bumped that up to an aggressive 25% due to the added tailwind from Great Eastern (SGX: G07) during strong market cycles.
• EPS: Projected using this quarter’s net profit margin.

DBS: Non-II Surges, But Heavyweight NII Limits Profit Growth

It’s clear that stable NII alongside a surge in Non-II lifted DBS’s profits for the quarter. However, NII remains the primary heavyweight engine, accounting for nearly 60% of total group income.

As a result, even if fee income grows at 15% in the second half, full-year EPS will expand at a more moderate rate of ~9%, landing around S$4.20.

OCBC: Insurance-Boosted Non-II Accelerates Profit Growth

OCBC tells a similar structural story, but with a visibly stronger growth kicker — largely thanks to a massive rebound in wealth fees and insurance income from Great Eastern.

Because Non-II contributes a larger proportion of total income compared to DBS, this fee acceleration delivers a stronger direct impact to the bottom line.

However, the key question remains: can this pace of Non-II expansion be sustained once market tailwinds cool down?

The very tailwind boosting returns today can easily become a drag when sentiment turns.

Moderate Growth Expectations

The structural pivot has been underway for some time, but this year’s margin pressures highlight how successfully both banks have executed an “engine swap” from net interest margins to fee income.

Still, with NII contributing over half of total income, it makes sense to moderate expectations for near-term overall profit growth:

• At their current scale, sustaining high single-digit profit growth is a remarkable feat, especially given the massive dividends paid out.
• Don’t expect a repeat of the explosive growth seen when global interest rates first spiked in 2022.
• Don’t project the current surge in wealth management fees to continue perpetually at these rates.

This realistic baseline is crucial for evaluating whether the market is pricing these banks fairly or if share prices have run ahead of fundamentals.

Valuation: Yield Compression vs. Dividend Growth

While we could analyze modified P/B ratios relative to ROE, or focus purely on forward P/E multiples, you are likely investing in bank stocks primarily for income.

Evaluating these valuations through the lens of dividend yield and payout sustainability offers the clearest, most direct path forward.

The Compressed Yield Issue

With bank share prices rallying steeply over recent quarters, forward yields have naturally compressed.

DBS’s clear articulation of its distribution structure provides certainty on cash flows:

• Ordinary Dividend Per Share: S$0.66 each quarter
• Capital Return Dividend Per Share: S$0.15 each quarter through FY2027

This translates to S$3.24 in total dividends per share annually.

At a share price of around S$76, that provides a total yield of ~4.2%. If management steps up the ordinary dividend to S$0.72 per quarter next year (as implied by their policy framework), total yield would tick up to ~4.6% on current prices.

While decent, that is a far cry from the attractive mid-5% to 6% yields available just a few quarters ago.

For OCBC, the compression is even tighter:

• For FY2026: Even if we include the potential S$0.16 special dividend (funded by unutilised buyback capital to complete their S$2.5B capital return plan), the annualised forward yield sits at just ~3.6% at today’s share price of ~S$30.
• For FY2027: Management has not announced any further capital return extensions beyond FY2026. This means payouts will default back to their baseline policy of 50% of net profit. Even if you optimistically bake in another full year of 10% net profit growth, the forward yield at current prices drops to ~3.4%.

Non-Guaranteed Dividend Growth

Buying at today’s levels means accepting a lower initial entry yield on the assumption that dividends will continue to grow in the future as a result of business expansion.

While that trajectory looks achievable today, it is never a given.

Just as management did not fully foresee this year’s massive fee momentum six months ago, a shift in the global macroeconomic environment can easily alter the trajectory.

You will need to factor such uncertainties into your consideration.

More Special Dividends Beyond FY2027?

The greatest potential for another special capital distribution lies with DBS. Like OCBC, they have drawn down very little of the allocated share buyback pool.

During the recent earnings call, CFO Chng Sok Hui noted that management is considering various options — including converting unutilised buyback funds into Capital Return dividends. This will be discussed further at Board level, with end-2027 as the absolute deadline.

Crucially, she also emphasised that the Capital Return Dividend is not intended as a permanent, continuous feature of their capital structure.

That is clear logic. After returning the excess capital, it doesn’t make sense to retain so little profit to fund future growth.

To me, sustaining an annual S$0.24 ordinary dividend step-up beyond FY 2027 will already be a tall order, as it requires DBS to consistently grow its profit in high single digits.

As for special dividends, I treat them strictly as a temporary bonus and don’t consider them part of my baseline yield projection.

To Buy or Not To Buy: Context is Everything

When a stock is traded, it doesn’t mean one party is right and the other is wrong. At the end of the day, it depends entirely on your specific investment goals and portfolio construction.

Consider three distinct investor profiles:

For Investor A, initiating a small starter position to phase in over time makes practical sense — waiting for an elusive market crash often means forfeiting years of valuable dividends.

For Investor B, trimming and rebalancing into higher-growth opportunities is likely the smarter move.

And Investor C? Holding the position to harvest reliable dividends while ignoring market price fluctuations is entirely rational.

You get my point?

Stop worrying about what others are doing with their bank stocks, and focus on what aligns with your own strategy.

Happily “Wrong” With No Regrets

I am merely plucking some overgrown blossoms (realised profits) from my garden… turning it into a peaceful sanctuary… I genuinely hope that they make me “regret” selling this 20% slice.

While I used the word “regret” in my previous post, I never meant it literally.

I recognise the near-term tailwinds driving the wealth management surge, but I remain mindful of how quickly macro conditions and market sentiment can shift.

Furthermore, with no fresh capital injected, rebalancing remains my default tool to reallocate capital into other promising opportunities.

As for my remaining holdings in DBS and OCBC, I’m going to hold on to them, collect the dividends, and continue to monitor their business progression.

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