Forget 1.5% from a savings account. I’d rather have FTSE 100-member HSBC’s 6% dividend yield

I believe HSBC Holdings plc (LON: HSBA) could deliver stronger total returns than the FTSE 100 (INDEXFTSE: UKX).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

While the release of the Marcus savings account has been met with high demand from investors, in reality its 1.5% interest rate lacks appeal in my opinion. The FTSE 100, for example, has a dividend yield of around 4%, while HSBC (LSE: HSBA) offers investors an income return of 6% in the current year.

As well as its income return being four times that of the Marcus savings account, HSBC also offers strong growth potential. As such, it could be worth buying alongside another income share which released an upbeat update on Thursday.

Growth potential

The company in question is the world’s second-largest cinema chain Cineworld (LSE: CINE). Its trading update for the 2018 financial year-to-date highlighted revenue growth of 10.2% at constant currency. Admissions increased by 5.9% versus the same period of the previous year, with a strong film slate in the US, improving performance in Europe and the positive impact of estate refurbishments acting as catalysts.

Looking ahead, the company is upbeat regarding the integration benefits of recently-acquired cinema chain Regal. It also believes that there are a number of exciting new film releases for the remainder of the year, with the business on track to deliver on its guidance for the 2018 financial year.

Cineworld is expected to record a rise in earnings of 21% in the next financial year. This is forecast to boost its dividend payments that are set to be around 47% higher in 2019 than they were in 2017. This puts the stock on a forward dividend yield of 4.7% for 2019. With dividends due to be covered 1.9 times by profit, further growth could be ahead over the medium term.

Improving business

As mentioned, HSBC has a dividend yield of around 6% at the present time. The company, though, is in the process of delivering significant changes to its business model. Ultimately, they have the potential to deliver a more diverse, faster-growing business which is more efficient. However, in the short run, it could equate to a period of disruption, uncertainty and relatively slow dividend growth.

Of course, the company’s strong and growing presence in emerging markets across Asia could provide a significant catalyst on its future dividend growth. It is also exposed to a wide range of countries in the rest of the world, and this may lead to greater diversity and resilience when it comes to making dividend payments compared to some of its FTSE 100 dividend peers.

With HSBC trading on a price-to-earnings (P/E) ratio of around 11.3, it seems to offer good value for money. Although there are risks facing internationally-focused companies, with the prospect of higher US interest rates and tariffs being two obvious examples, the stock’s valuation suggests that there may be a wide margin of safety on offer. As such, it could offer high long-term total returns which easily beat the 1.5% interest rate on offer from the top savings accounts.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »