1,904 shares in this 9.39% yielding UK stock would pay me a £100 monthly income

Harvey Jones is stunned by the passive income paid by this top UK stock. It’s one of the highest on the FTSE 100 but there are risks, too.

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This ultra-high-yielding UK stock has caught my eye because it’s giving investors an unbelievable rate of passive income right now.

The stock is Asia-focused bank HSBC Holdings (LSE: HSBA) and a high income isn’t the only attraction. The FTSE 100 blue-chip looks cheap, which surprises me, because it’s been making squillions lately. So what’s holding investors back?

HSBC’s trailing yield is 6.96% but that’s forecast to jump to a mind-bending 9.39% in 2024. However, analysts reckon it will slip back to 7.25% in 2024. That’s still an excellent rate of income, but why the bouncing around?

FTSE 100 opportunity

In 2023, HSBC paid a total dividend of $0.61. This was its highest since the financial crisis in 2008, and double the $0.32 paid in 2022. 

The reason? 2023 was an absolute stormer with profit before tax soaring 78% to $30.3bn, “driven by the strength of our balance sheet in a higher interest-rate environment”.

Analysts reckon HSBC will pay another bumper dividend per share of $0.60 in 2024. The board has also promised to pay a special dividend of $0.21 following the sale of its Canadian division. Hence that sky-high forecast yield.

Assuming a total dividend per share of $0.81 in 2024, including the special, buying 1,904 HSBC shares would give me annual income of £1,200, or £100 a month. At today’s price of 678.6p, that would cost me £12,925.

That would make HSBC one of my biggest portfolio holdings, but leave a chunk of my Stocks and Shares ISA allowance for other opportunities. Should I go for it?

I can’t expect another special dividend in 2025, but analysts are forecasting a dividend per share of $0.62, rising to $0.64 in 2026. With the board pledging to return 50% of earnings to shareholders through dividends, it could pay more.

HSBC is also rewarding shareholders with bumper share buybacks. They totalled $7bn in 2023, with another $2bn lined up for the first quarter of this year.

Dividends and share buybacks

The HSBC share price climbed a solid 12.64% in the last year, and is up a bumper 56.04% over three years. Dividends are on top. Yet it doesn’t look expensive, trading at 6.74 times forecast 2024 earnings.

With forecast net income of $24.81bn in 2024, and no debt on its balance sheet, this looks like a solid bet. My worry is that HSBC comes with outsized geopolitical risk.

Relations between the West and China are bad and getting worse. The EU has just slapped a 38.1% tariff on Chinese electric car imports, bringing a trade war closer. If Chinese premier Xi Jinping makes a grab for Taiwan, HSBC might have to choose sides in a superpower struggle.

HSBC’s China operations expose it to fallout from the country’s property crisis, ageing population and increasing authoritarian rule. When interest rates are finally cut, this could squeeze its margins and knock proifts.

Given these risks, I wouldn’t invest £12,925 in HSBC today. I’d invest £5,000 to grab my share of that might yield, and will do so when I have the cash.

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. Harvey Jones has no position in any of the shares mentioned. 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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