I’d buy 2,100 shares of this FTSE 100 stock for £1,000 a year in passive income

The London Stock Exchange is full of stocks that pay attractive dividends. Here’s one FTSE share I’d buy today to start generating passive income.

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There’s an abundance of high-yield dividend stocks in the UK, almost to the point of being spoilt for choice. These can generate attractive streams of passive income for years and potentially decades.

Glancing across the income side of my Stocks and Shares ISA, one stock stands out to me right now. That’s HSBC (LSE: HSBA), the FTSE 100‘s third-largest company by market cap.

Here’s why I’ve been building a position in this banking goliath.

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Created with Highcharts 11.4.3HSBC Holdings PriceZoom1M3M6MYTD1Y5Y10YALL10 Aug 201910 Aug 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

Strong performance

HSBC operates in 60 countries but its focus is increasingly on Asia. Its long-term growth opportunities in this region appear very attractive due to an expanding middle class and rising demand for wealth management services.

We got a glimpse of this potential recently when the bank reported its H1 results. Post-tax profit came in at $17.7bn, which was 2% lower than H1 last year but still better than analyst were expecting. Its wealth revenue rose 12% to $4.3bn, boosted by a 16% increase in private banking income.

Wealth management in Asia is a competitive market, but it could be a lucrative one as the number of ultra-high-net-worth individuals (particularly billionaires) grows in the region.

Top 10 cities with the most billionaires in 2024

RankCityNumber of billionaires
1New York119
2London97
3Mumbai92
4Beijing91
5Shanghai87
6Shenzhen84
7Hong Kong65
8Moscow59
9New Delhi57
10San Francisco52
Source: Hurun Research Institute

A grand a year in annual passive income

The stock offers a juicy 7.35% dividend yield, which is double the FTSE 100 average. As I write, one share is 640p. That means I’d need approximately 2,100 shares to generate £1,000 a year in passive income.

These would cost me around £13,460, which is quite a hefty chunk of money. But that doesn’t mean I couldn’t buy the stock frequently and gradually work my way towards that figure.

For example, if I invested £100 a week in HSBC, I’d have enough shares within three years to pay me £1,000 in annual passive income.

Of course, the reality is that the share price won’t be static for three years and dividends aren’t certain. So drip-feeding my money into a variety of stocks on a regular basis (or ‘pound cost averaging’) would be a smarter strategy.

Risks to consider

Now, the dividend yield isn’t way above the average for no reason. There are risks here.

Chief among these is China. Its property sector crisis combined with weak household consumption is creating major problems in the world’s second largest economy. This is not ideal for HSBC, given that China is its biggest growth market.

Plus, we’ve got the US election coming up. Neither party will want to risk being seen as weak to voters when it comes to a major geopolitical competitor. Tough rhetoric around China could mount.

HSBC’s new Lebanese-born CEO has been learning Mandarin, underlining China’s importance to the firm.

Finally, the boost to its income from higher interest rates is likely to fade in the coming months. This could make investors less enthusiastic about the stock.

Nevertheless, I think the high dividend yield combined with the long-term growth potential is well worth the risk. With spare cash, I’d happily invest in HSBC shares for passive income today.

We think earning passive income has never been easier

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The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

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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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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