You Simply Can’t Ignore A 5.2% Yield From HSBC Holdings Plc

Skittish markets have hit HSBC Holdings Plc (LON:HSBA).

| 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.

There is plenty for investors to dislike about HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US). The share price is down 10% over the past year, and 6% over three years. In March, Credit Suisse downgraded the business, warning of trouble in Asia, where it generates two-thirds of its profits. The blighted bank has suffered other local difficulties, notably a squeeze on Latin American earnings. Banking remains a troubled sector generally, and the recovery process still has further to run. Happily, there is one thing I do like right now.

HSBC is forecast to yield 5.2% by the end of this year. No savings account offers anything like that much. Only a handful of FTSE 100 stocks match it. Even if the share price never rises again, a yield of 5.2% will still double your money in less than 14 years.

Emerging Markets Aren’t Going Anywhere

I don’t expect the HSBC share price to stay flat for the next 14 years, far from it. After three years of underperformance, the cycle will move back in its favour soon enough. HSBC isn’t exactly a disaster zone, in any case. Its full-year results, published in February, showed a 9% rise in reported profit before tax to $22.6 billion. That figure may have disappointed a market greedily expecting another $2 billion or so extra, but that’s all in the past. Those are still whopping profits.

hsbcThe global economy may be shaky, and emerging markets, led by China, highly uncertain. But that is largely reflected in the HSBC share price (although a full-scale blow-up isn’t). I’m writing this for long-term investors in mind, and in the long term, the emerging markets story is still intact. They have youthful populations, low consumer debt, an emerging middle-class and billions to pour into infrastructure and urbanisation. An emerging market hiccup was inevitable, but the trend is their friend.

And You Will Soon Get 5.6%

HSBC management has been grumbling about ever-tightening regulations in the UK, which may squeeze profits and bonuses. But the bank has been successful in meeting demands so far, and now boasts a beefy core tier 1 ratio of 13.6%. That’s up from 12.3% in 2012, and almost double its 2008 figure. Regulatory creep may put a brake on future growth, by limiting opportunities while ratcheting up costs, but it’s a burden that every bank must bear. HSBC is simply shouting loudest.

Markets are skittish right now, and that has hit HSBC. We’re all waiting to see what will succeed the five-year bull run. On the plus side, this means you can buy the bank at a modest 12.3 times earnings. That makes it cheaper than Standard Chartered, which trades at 13.2 times earnings despite its greater exposure to emerging markets troubles. HSBC is positively cheap compared to Barclays, which trades at 14.8 times earnings.

HSBC may have fallen short of sky-high investor demands, but it is still on course to deliver earnings per share growth of 12% this year, and another 11% in 2015. By then, this stock will yield 5.6%, which will make it even harder to ignore.

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 doesn't own shares in any company mentioned in this article. The Motley Fool owns shares in Standard Chartered.

More on Investing Articles

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

No savings at 25? I’d start by investing £3k in these 3 red-hot FTSE 100 shares

Harvey Jones thinks these three FTSE 100 stocks would be a great way to kickstart a portfolio of UK shares.…

Read more »

Young Black woman using a debit card at an ATM to withdraw money
Investing Articles

Up 35% from this year’s low! Here’s where I think Lloyds shares are headed in H2 of 2024

My Lloyds shares are already doing well this year but that’s not guaranteed to continue. What factors could turn the…

Read more »

Investing Articles

Approaching £5, is there still growth ahead for the Rolls-Royce share price?

The Rolls-Royce share price has been flying in the last year. But is there more growth ahead or should investors…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

Could Raspberry Pi be a growth share to buy and hold?

Our writer explains why he thinks a newly-listed UK growth share could have a bright future -- and considers whether…

Read more »

A pastel colored growing graph with rising rocket.
Market Movers

The FTSE 100 jumps after the Bank of England meeting. Here’s what’s next

Jon Smith runs over the takeaways from the Bank of England meeting today and flags up which FTSE 100 stocks…

Read more »

Middle-aged white male courier delivering boxes to young black lady
Investing Articles

How I’d start investing in great value UK shares with £10,000 today

Harvey Jones can see a heap of UK shares he'd like to add to an ISA today. Many combine low…

Read more »