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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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
| Rank | City | Number of billionaires |
|---|---|---|
| 1 | New York | 119 |
| 2 | London | 97 |
| 3 | Mumbai | 92 |
| 4 | Beijing | 91 |
| 5 | Shanghai | 87 |
| 6 | Shenzhen | 84 |
| 7 | Hong Kong | 65 |
| 8 | Moscow | 59 |
| 9 | New Delhi | 57 |
| 10 | San Francisco | 52 |
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.
