What Dividend Hunters Need To Know About HSBC Holdings plc

Today I am looking at whether HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) is an appealing pick for those seeking chunky dividend income.

Bank on blockbuster dividend growth

HSBC has been a consistent dividend superstar over the past five years, with smashing annual dividend increases — which ran at a compound annual growth rate of 9.6% since 2009 — enabling “The World’s Local Bank” to offer dividend yields comfortably ahead of the market average.

And City analysts expect HSBC to keep the payouts chugging higher in the medium-to-long-term, with a 9% advance for 2014, to hsbc53.4 US cents, expected to be followed with an additional 8.4% rise next year to 57.9 cents.

Such projections create mammoth dividend yields of 5.3% and 5.7% for 2014 and 2015 respectively. Not only do these figures take the FTSE 100 forward average of 3.2% to the cleaners, but they also easily outstrip a corresponding reading of 3.5% for the complete banking sector.

A safe pair of hands

Forecasters expect a backdrop of steady earnings growth in coming years to underpin such solid dividend increases — growth of 11% is anticipated both this year and next. These robust growth rates create strong dividend coverage, providing investors with peace of mind over the likelihood of such meaty payments materialising.

HSBC carries dividend cover of 1.8 times prospective earnings for both 2014 and 2015 respectively, just below the security watermark of 2 times.

The bank is also divesting non-core assets in a bid to deliver a more efficient, earnings-generating machine and to bolster its already-respectably capital position, a positive omen for potential payout increases. HSBC most recently sold off its banking division in India this month, while other assets still on the chopping block include its business in Uruguay.

In my opinion HSBC is a fantastic stock selection for both growth and income stock seekers. The firm’s hefty presence in developing markets — more than two-thirds of group profit originates from Asia Pacific alone — promises to deliver stunning long-term earnings expansion on the back of burgeoning income levels and rising populations in these areas.

With the bank’s pan-global presence also providing a significant buffer against economic turbulence in one or two geographies, I believe that HSBC is a solid pick for those seeking dependable and weighty dividend growth.

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Royston does not own shares in HSBC Holdings.