Two dividend stocks I’ve decided I’ll be buying for my holdings as soon as I can are HSBC (LSE: HSBA) and The PRS REIT (LSE: PRSR).
Here’s my investment case!
HSBC
A tough economic backdrop recently has made banking stocks appear out of favour to many, me included. However, as a long-term investor, I reckon HSBC is a potential bargain with a great passive income opportunity.
Over a 12-month period, the shares are up 3% from 620p at this time last year to current levels of 642p.
I find myself drawn to HSBC’s valuation, enticing yield, and crucially, the firm’s growth prospects.
HSBC’s recent strategic moves to focus on high-growth territories, especially Asia, could be shrewd for long-term performance growth. The business has a wide profile and reach. However, it seems to be exiting markets it considers to be unfavourable for long-term growth and sustainability. A prime example of this is it selling its Canadian operations.
I do believe there could be some short-term pain ahead. For example, if a global recession were to occur, performance and payouts could be impacted. In addition to this, economic problems in China could hurt its ambitious growth plans in this region.
However, a forward dividend yield of 8% and the shares trading on a price-to-earnings ratio of just six is appealing to me. I am conscious that dividends are never guaranteed.
Now could be a great time for me to buy some shares with a view to long-term growth and returns.
The PRS REIT
Real estate investment trusts (REITs) are property businesses that must return 90% of profit to shareholders. PRS focuses on the private rental sector, which is a burgeoning market.
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Like banking stocks, property stocks have been hurt by economic turbulence, namely rising interest rates lowering net asset values (NAVs).
PRS shares are down 14% over a 12-month period, from 89p at this time last year to current levels of 76p.
The housing imbalance in the UK, where demand is outstripping supply, coupled with rising interest rates making it harder for home buyers to get on the property ladder, present an opportunity for PRS to grow performance, and hopefully returns. In addition to this, as the UK population continues to grow, demand for its properties should remain pretty robust.
Looking at some fundamentals, the shares actually look undervalued on a price-to-earnings growth (PEG) ratio of just 0.6. A reading of below one usually indicates a stock may be undervalued. Furthermore, a dividend yield of 5.1% is enticing too.
Continued volatility is PRS’ biggest issue moving forward, in my view. A cost-of-living crisis, and the fact we’re now in a recession with an uncertain outlook ahead, could impact rental collection, as well as growth aspirations. Performance and returns could be hurt, at least in the short to medium-term, in my eyes.
Overall I reckon the rewards outweigh the risks here by some distance. I’d be willing to ride out some volatility for future returns and growth with PRS shares.
