The HSBC (LSE: HSBA) share price has been cooking up a storm lately. It’s up 25% in the last 12 months while over five years, the FTSE 100 bank has climbed 120%.
It’s also been a generous source of income, currently offering a trailing dividend yield of 5.75%. Investors who’ve stuck with it have enjoyed a rising payout, backed by massive share buybacks, which the board has been approving at a pace of $3bn a quarter. The most recent one was announced on 29 April.
Profits slow
While buybacks don’t put cash directly in investors’ hands, they support shareholder returns in other ways. Fewer shares in circulation can mean a higher dividend per share if total distributions hold steady. Even more if they climb.
That’s all great news for those who bought earlier. But what about today?
On 29 April, HSBC’s first-quarter results showed a 25% drop in pre-tax profits to $9.5bn. However, last year’s $12.7bn included windfalls from selling its Canada and Argentina arms. Results beat analyst expectations of $9.1bn.
Net interest income came in at $8.3bn, slipping from $8.7bn as global rates cooled slightly. Credit loss provisions rose to $876m, with $100m set aside for Hong Kong commercial property.
The bank also warned that trade tensions and protectionist policies are fuelling economic uncertainty, hitting both business and consumer sentiment in key regions.
Asian profit engine
A couple of years ago, I gave HSBC a wide berth. The group was caught in the crossfire between China and the US, amid concerns about Beijing’s approach to civil rights.
The board has responded by splitting operations into Eastern and Western divisions. It’s the East that really matters today. Roughly 75% of pre-tax profit is generated in Asia, with China, Hong Kong and Singapore playing leading roles.
Any slowdown in China matters. The property market remains shaky, and the country’s shadow banking sector, demographic crunch and exposure to US tariffs are making things worse.
The price-to-earnings ratio is a modest 9.3, which looks reasonable. The price-to-book ratio sits at 1.1, though, suggesting it’s not bargain-basement cheap.
In 2023, earnings per share (EPS) grew a bumper 60%. That cooled to just 9% this year with EPS growth of 8.7% forecast in 2025.
Dividend income too
Broker sentiment is cooling too. Of the 21 offering ratings, eight rate the stock a Buy but 11 are wary, saying Hold. Just two say Sell though. The median 12-month share price target is 925p, just 5% above today’s 881p.
That’s underwhelming. Although factor in next year’s forecast yield of 5.79%, and the total return is a bit more appealing.
I suspect 2025 won’t deliver a repeat of recent fireworks, investors might consider buying now. A £10,000 investment could grow modestly in share price terms over the next 12 months, but with that chunky income stream, it could generate a total return of around 10.8% if those forecasts play out (warning: they rarely do).
That would turn £10,000 into roughly £11,080. However, I would never judge any stock over such a short timeframe. I think HSBC is worth considering today, but the real returns will come over five, 10, 15 or 20 years…
