I’ve bought this stock for a second income

This Fool recently purchased shares in a FTSE 100 company to bolster his second income. He explains why he saw now as the ideal time for him to buy.

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I want to boost my second income. The best way to do this, I think, is to buy shares that pay a healthy dividend.

When the payments land, I could bank them. But I’ll probably reinvest them to compound my gains. By doing this, I can build my pot quicker.

I own a host of companies that reward their shareholders with meaty yields. But I’ve been keen to buy more. I’ve seen the impact it can have through the ones I already hold.

I’d been looking at the FTSE 100 for my next target. I recently found it.

What I bought

The stock in question is HSBC (LSE: HSBA). Let’s start by taking a brief look at its performance as of late.

In the last year, the stock has seen 1.3% shaved off its price. Year to date it’s down by 3.1%. That’s not great. A large reason for its fall was the 8% decline it experienced after it announced its full-year results for 2023 on 21 February. Investors saw issues with its performance. They rushed to dump the stock.

A handsome yield

But is that really a bad thing? I’m a Fool (with a capital F), so instead of worrying about its large decline, I sensed an opportunity to buy some cheap shares in a quality business.

What’s more, a declining share price means a higher yield. As I write, investors can snap up a mighty 8% yield on the stock. The FTSE 100 average is near 4%, so it clears that by a considerable margin.

I was also happy to see a rise in its dividend for 2023. It jumped from 32 cents per share in 2022 to 61 last year. I’m aware that dividends are never guaranteed, so when I target a company to buy, it’s progressive actions like these that I want to see.

Exposure to China

There are risks, of course. It has a large exposure to China. The negative impacts of this were seen in its latest results.

A $3bn writedown on its stake in China’s Bank of Communications (BoCom) had investors concerned. This dent is a result of the nation’s flagging real estate industry. At the end of 2022, BoCom had a ‘value in use’, an accounting measure of current value, of $24bn. As of the end of 2023, however, it sat at $21bn. This is an issue to keep an eye on moving ahead.

I’m still bullish

But in all honesty, that doesn’t concern me too much. And I’m actually keen on the stock due to the exposure it has to Asia. I think in the years to come, this will pay off. Asia is home to some of the most exciting economies out there.

I’ve had HSBC on my watchlist for a while now. Trading on just 6.7 times earnings, I couldn’t resist rushing in to buy some shares.

After my purchase, I’m happy with the exposure I have to the bank for now. However, if its share price remains cheap, I’ve got a feeling I’ll be topping up my position in the near future.

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has positions in 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.

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