I’d invest £515 a month in this FTSE 100 stock for £1,000 a year in passive income

This Fool thinks one high-yield Footsie dividend share offers exceptional growth and passive income prospects over the next couple of years.

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The FTSE 100 offers investors a global smorgasbord of high-quality dividend stocks. So much so in fact that I sometimes find it difficult to choose from the variety offering me attractive passive income.

However, there’s one cheap UK bank stock that stands out to me right now.

An Asia-focused bank

HSBC (LSE: HSBA) is a global bank, but it has a particular focus on Asia. This region contains some of the fastest growing economies in the world.

According to the United Nations, South Asia grew by an estimated 5.3% in 2023, and will grow another 5.2% this year.

India, where HSBC opened the country’s first ATM in 1987, is the fastest growing large economy in the world. It’s expected to grow by 6.2% in 2024.

Even China, beset by economic issues and a long-running property crisis, is forecast for 5% economic growth this year.

I want my portfolio to have more exposure to the growth of Asia’s rising middle classes. But investing directly in Indian or Chinese stocks is too risky for my liking.

So, HSBC shares, trading on a dirt cheap price-to-earnings (P/E) ratio of 6.4, offer me the perfect proxy to do this.

Meanwhile, the dividend prospects look excellent.

A passive income plan

In 2023, HSBC paid a total dividend of 61 cents a share (48p on the current exchange rate). Based on a share price of £5.92, this gives a giant dividend yield of 8.1%.

Financial yearDividend per share
2025 (forecast)$0.62
2024 (forecast)$0.77*
2023$0.61
2022$0.32
*includes a special dividend of $0.21 per share

It means I’d need to invest around £12,350 to target £1,000 a year in passive income.

But what if I couldn’t afford that cash upfront? An alternative approach could be to gradually work my way towards that figure.

For example, if I invested £515 a month, that would get me to 1,043 shares after one year. Then, after two years, I’d have the necessary 2,080 or so shares for £1,000 of annual passive income.

Of course, in reality, share prices don’t stay static from month to month. They’ll go up, meaning I’d get fewer shares, as well as down, which would allow me to accumulate more.

This drip-feeding strategy is called pound cost averaging, and can be safer than investing a lump sum all at once. Furthermore, carrying it out in a Stocks and Shares ISA means I’d pay no tax.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Thinking long term

Now, it goes without saying that dividends aren’t guaranteed, even from global banking behemoths. The financial crisis taught us that much. So I’d want a diverse basket of dividend payers.

What’s more, interest rates are set to fall, bringing banks’ earnings down. And the meltdown in China’s property sector could worsen, affecting HSBC’s profits and dividends.

Indeed, its profit fell 80% in the fourth quarter after the bank recorded a $3.4bn impairment for potential losses connected to its holdings in a Chinese bank.

Nevertheless, this impairment hasn’t reduced its dividend capacity and a further $2bn share buyback was announced.

Looking forward, the company’s strong competitive position and balance sheet give me confidence that this is a solid long-term investment.

Its strategic focus on Asia, the world’s fastest growing region, will surely pay dividends (literally) over time.

This is why HSBC now forms a part of my own income portfolio, and why I intend to keep buying shares in 2024.

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. Ben McPoland 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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