HSBC Holdings plc’s Dividend Prospects For 2014 And Beyond

Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.

In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.

Today, it’s the turn of banking giant HSBC (LSE: HSBA) (NYSE: HSBC.US).

Dividends past

The table below shows HSBC’s five-year dividend record.

  2008 2009 2010 2011 2012
Statutory earnings per share (EPS) 41¢ 34¢ 73¢ 92¢ 74¢
Dividend per share 64¢      34¢      36¢      41¢      45¢     
Dividend growth -28.9% -46.9% +5.9% +13.9% +9.8%
Dividend cover 0.6x 1.0x 2.0x 2.2x 1.6x

HSBC’s shareholders saw a big drop in their income during the financial crisis. The reduced dividend of 2008 was uncovered by earnings, and the further-reduced dividend of 2009 was only barely covered. During the latter year HSBC also asked shareholders to stump up a whopping £12.5bn to strengthen its capital position in what was Britain’s biggest ever rights issue.

However, for the past three years the dividend has grown by an annual average of close to 10% — well ahead of inflation — and dividend cover has averaged a healthy 1.9 times.

A shaky dividend performance through extraordinary times, but now making strong progress from the lower dividend base.

Dividends present

HSBC has so far paid three quarterly dividends totaling 30¢ for the current year. Most analysts are expecting a final dividend of 21¢ when the company announces its annual results on 24 February — giving a 2013 full-year payout of 51¢  (up 13.3% on 2012). EPS is expected to be over 25% ahead of 2012 at 93¢, strengthening dividend cover to 1.8 from last year’s 1.6.

At a share price of 670p, HSBC’s current-year dividend (just under 32p sterling expected) represents a yield of 4.8%.

Dividends yet to come

Analysts are forecasting a further double-digit rise for HSBC’s dividend in 2014 — to 56¢ or 57¢. The forecasts, and HSBC’s policy of paying equal dividends for the first three quarters and a variable fourth, suggest we could be looking at the following payments:

  Q1 Q2 Q3 Q4
Forecast dividend 11¢ 11¢ 11¢ 23¢ or 24¢

The analysts see EPS for the year at 102¢ (up 9.7% on 2013), maintaining dividend cover at around the 1.8 level.

After the shock to the system of the 2008-9 financial crisis, and with tougher capital requirements now required by regulation, bankers should be good for behaving prudently for at least a generation or two.

Super heavyweight HSBC, the Footsie’s most geographically diversified bank, ought to prosper in a benevolent global economy, while not being too badly impacted by any sluggishness in any particular region.

Shareholders can be optimistic about continued annual dividend increases ahead of inflation.

Analysing banks is a little different to analysing most other businesses, which is why I recommend you read the Motley Fool’s brand new "Essential Guide to Investing in Banks".

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> G A Chester does not own any shares mentioned in this article.