The UK’s leading share index is packed with exceptional, passive-income-providing dividend stocks. Many FTSE 100 shares are mature, highly-cash-generative entities with diverse revenue streams, qualities that give them the means and the confidence to pay big dividends year after year.
Today the Footsie’s forward dividend yield sits at 3.8%. But there are literally dozens of stocks that offer a better yield than this.
Among all of these attractive investing opportunities, one is especially appealing to me right now. Let’s take a closer look.
A banking giant
Asia-focused HSBC Holdings (LSE:HSBA) is by far London’s mightiest banking share. With a market capitalisation above £118bn, the total value of its outstanding common shares is almost four times larger than that of second-placed Lloyds Banking Group.
Unlike its FTSE 100 peer, HSBC has a wide geographic footprint with operations in all four corners of the globe. More recently it has taken to selling assets in mature markets (like France and Canada) as it pivots towards fast-growing Asian markets.
Dividends from the company fell sharply following the Covid-19 outbreak in 2020. But shareholder rewards have increased strongly since then as profits have rebounded. The annual payout leapt 28% last year.
A £2k passive income
With a yield of 10.3% for 2024, investors will need to spend just over £19,400 on HSBC shares to generate a passive income stream of £2,000.
Of course not everyone has this sort of cash on hand to spend. Investing such a hefty sum is especially tough today as the cost-of-living crisis steadily chips away at peoples’ savings.
However, steadily investing over time means that even cash-strapped individuals could obtain this level of second income.
At the current share price of 612p, buying 20 HSBC shares a week, or 87 shares a month (worth £532) would unlock that magic £2k second income in just over three years.
Why I’d buy HSBC shares
That’s assuming shareholder payouts meet City forecasts for next year and remain at that level over the short term. Dividends at banking stocks can fall when economic conditions worsen and profits come under pressure.
However, it’s my belief that HSBC could deliver healthy dividend growth through to 2027 and beyond. I expect earnings to steadily rise as banking product demand in its Asian markets grows.
I’m also confident that the bank’s strong balance sheet will help it to pay increasingly large dividends during the next three years. Its common equity tier 1 (CET1) rose to an impressive 14.9% as of September.
To illustrate its financial strength, HSBC in October announced plans to buy back another $3bn worth of shares, taking total repurchases in 2023 to $7bn.
Dividends can never be guaranteed. And problems with its cost-cutting plans, combined with a fresh economic downturn, could hamper shareholder payouts here.
But on balance I think HSBC shares are a great buy for passive income next year and beyond. I’d buy if I had cash to spare.
