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Is HSBC Holdings plc A Super Income Stock?

hsbc

While many of its banking peers have struggled to keep up with the FTSE 100 over the last five years, HSBC (LSE: HSBA) (NYSE: HSBC.US) has delivered returns that are within 3% of the FTSE 100’s rise of 74%. Indeed, HSBC has benefited from a greater exposure to emerging markets than many of its UK-focused peers and has experienced a much more stable and profitable period. However, after its considerable rise in recent years, is it now too expensive to still be classed as a super income stock?

Strong Past Performance

As mentioned, HSBC has performed relatively well in recent years and has made a profit in each of the last five years. This has enabled the bank to grow dividends in each of the last four years, with dividends per share increasing at an annualised rate of 9.5% during the period. Considering this has coincided with one of the worst banking crises in history, HSBC has delivered returns (and growth) to shareholders that are highly impressive.

More Growth Ahead

The next two years look set to offer similar levels of dividend per share growth as the last four, with dividends per share forecast to increase at an annualised rate of 9.3% in 2014 and 2015. This is well ahead of the FTSE 100 average and shows that HSBC continues to experience strong growth prospects. For instance, earnings per share (EPS) are forecast to grow by 15% in 2014 and by 10% in 2015, which affords the company the scope to continue its recent history of above-average dividend growth.

Valuation

With shares in HSBC having increased by 71% in 5 years, a valid concern could be that its price is now too high to buy. However, HSBC trades on a price to earnings (P/E) ratio of just 10.7, which is well below the FTSE 100’s P/E of 13.5. HSBC seems to offer good value and does so despite the aforementioned price rise largely as a result of strong EPS growth in recent years.

A Super Income Stock

With a yield of 5.3%, HSBC beats the yield on the FTSE 100, as well as inflation and high street savings accounts. Allied to this are impressive dividend growth prospects and a relatively attractive valuation which, when combined, mean that HSBC remains a super income stock.

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Peter owns shares in HSBC.