HSBC Holdings plc Is Still A Dividend Machine

HSBC Holdings plc (LON: HSBA) disappointed markets with its recent results, but that shouldn’t deter dividend investors

| 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.


HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) recently posted its fattest profits since the financial crisis, and markets celebrated by trashing its share price 5%. Welcome to the crazy world of FTSE 100 investing. Its share price is down 13% over the past 12 months, against a 6% rise for the index, however, so it is clearly doing something wrong.

With investors fretting over a potential emerging markets meltdown, HSBC only added to their worries with its full-year results for 2013. Pre-tax profits rose 9% to $22.6 billion, but markets had expected another $2 billion on top of that. A 17% drop in Latin American earnings to $1.97 billion did some damage. Management sounded a little nervous itself, predicting greater volatility and choppy markets in 2014, ramping up the fear factor.

Gulliver’s travails

There was still plenty of good news in there. Underlying profits rose 41% to $21.6 billion, for example. HSBC has been cutting costs, trimming staff 10% to 254,000 over three years. This may leave a bad taste, with chief executive Stuart Gulliver, who earned $8 million in salary and bonuses last year, leading a campaign against the new EU bonus, but that’s banking for you. But there’s one thing about HSBC that’s the really grabs my eye.

Last year, HSBC paid more than half its earnings as dividends. Better still, its strong capital position leaves it nicely placed to continue rewarding shareholders. HSBC boasts a Core tier 1 ratio of 13.6%, marginally ahead of Barclays at 13.2%, and notably stronger than the 10.9% cushion at RBS and 10.3% at Lloyds Banking Group. HSBC paid a total dividend of 49 cents last year, up 9% on 2012. It is on a forecast yield of 5.3% in 2014, which is forecast to rise to a whopping 5.8% next year. If you buy the stock now, and sit tight, the income will come streaming in.

In return, you may have to endure a bit more share price volatility. Mis-selling accusations and regulatory interventions are a constant menace. Bank levies keep rising. China hangs in the balance (although HSBC still reckons it will grow 7.4% this year). The emerging market growth story could still end messily. But my position on banks hasn’t changed. In the long run, they’re where the money is. 

Bad banks, good investment

HSBC is where I would start. First, its dividend is streets ahead of Barclays, which yields 2.6%, while Lloyds and RBS aren’t even in the game. Its hefty emerging markets exposure is troubling in the short term, but in the longer run, management predicts trading capital flows between Asia, the Middle East and Latin America could increase tenfold by 2050, and HSBC will be in the thick of it. 

Earnings per share are forecast to rise 18% this year and 10% in 2015. Better still, thanks to recent share price dip, you can buy HSBC on a forecast valuation 10.6 times earnings for December 2014. That’s a fair price to pay for a dividend machine.

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.

> Harvey owns shares in RBS.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
US Stock

This growth stock that Warren Buffett owns just hit 52-week lows. Should I buy?

Jon Smith flags up a high-profile US stock that the great Warren Buffett bought back in 2020 but which has…

Read more »

White female supervisor working at an oil rig
Investing Articles

Could the UK general election be bad news for this FTSE 250 energy producer?

The country is due to vote in the general election on 4 July. Our writer looks at the possible implications…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should we buy cheap FTSE 100 shares now, before it’s too late?

The FTSE 100 is up 5% so far in 2024 and hit an all-time high in May. That means the…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Here’s why I think the Lloyds share price could hit a 5-year high in 2024

It's up 13.5% so far in 2024, and reaching new highs. But where might the Lloyds Bank share price go…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

If I’d put £15k into this FTSE 250 stock in 2008, I’d have over £1.26m today

This multi-billion-pound business has created plenty of millionaires over the last 16 years, but can it repeat this performance?

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

3 dividend shares I’ve bought for the next decade!

I think these UK dividend shares can amplify my long-term passive income, and could even be on track to becoming…

Read more »

Investing Articles

If I’d put £5,000 in Scottish Mortgage shares at the start of 2024, here’s what I’d have now

Scottish Mortgage shares have staged a recovery lately, powered by the public and private growth stocks held in the portfolio.

Read more »

Happy couple showing relief at news
Investing Articles

9.9% dividend yield! Is this FTSE 100 stock a brilliant bargain?

This leading British enterprise looks like a delicious deal for passive income, trading at a low multiple while offering a…

Read more »