How Strong Are HSBC Holdings plc’s Dividends?

HSBC Holdings plc (LON: HSBA) is set to pay 5%, but is it reliable?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

HSBCHSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) is one of out few FTSE 100 banks that has kept its dividends going when all around were being pared to the bone.

For the year to December 2013, we saw a yield of 4.4%, which was about 1.7 times covered by earnings per share (EPS). Forecasts for this year suggest a yield of a little over 5%, and although there’s a small increase in the cash expected, a portion of that increase is down to a falling share price — over the past 12 months it’s down 7% to 607p while the FTSE has gained 12%.

China

The reason for the share price fall is the same thing that could put downwards pressure on dividends — worries about a slowdown in China, and maybe even some sort of crunch.

The boom of the past few years has seen Chinese property prices soaring, and there’s been parallel growth in credit markets — Chinese borrowing is reaching heights that are making some economists twitchy.

Couple that with the Chinese government’s plan to shift economic stimulus more towards private investment and away from state-led projects, and its desire to get growth down from current levels of around 7.5% per year — and you can see where fears of a crunch are coming from.

Not worried

Having said that, the City’s analysts don’t seem to be too worried about such an eventuality — they have rises in EPS of 9% to 10% forecast for the next two years, with dividend growth lagging those levels a little.

The company itself doesn’t seem to be too worried, and in its annual report for 2013 published in March, chief executive Stuart Gulliver said that “We remain of the view that the GDP of mainland China will grow by 7.4% this year, the UK by 2.6%, the USA by 2.5% and Western Europe by 1.2%“.

But pointing out the volatility that has hit some emerging markets, he did add that “we anticipate greater volatility in 2014 and choppy markets as adjustments are made to changing economic circumstances and sentiment“.

Analyst recommendations are strongly tilted towards the bullish side right now, with 13 out of 29 issuing Buy ratings and just six suggesting we should Sell.

Still good

Should HSBC suffer from a Chinese slowdown, at least its capital position will be significantly healthier than the UK’s high street banks in 2009 — and the chance of a full-blown rout seems remote.

On the whole, I’m cautiously optimistic about HSBC’s dividends, and despite the worries I see them as still an attractive proposition.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan does not own any shares in HSBC.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »