With a dividend yield of 5.4%, it’s unsurprising that HSBC (LSE: HSBA) is a relatively popular income stock. After all, the company offers a real income return at the present time. Even if inflation rises from its current rate of 3%, the company’s dividend yield has sufficient headroom so that it is likely to continue to offer a positive real-terms return.
Looking ahead, the company’s dividend payments could rise at a rapid rate. Shareholder payouts are well-covered by profit, while the company’s earnings growth potential remains high.
However, it’s not the only dividend stock that could be worth buying. Reporting on Tuesday was provider of digital entertainment solutions for Internet TV and in-home multimedia distribution, Amino Technologies (LSE: AMO). It has made good progress in its year to 30 November, with it expecting to report a performance which demonstrates continued customer traction for its products despite industry-wide cost headwinds.
The company’s gross profit and adjusted profit before tax are expected to be in line with market expectations, with revenue expected to be similar to the previous year due to product mix.
With a dividend yield of 3.5%, Amino Technologies offers a real income return right now. It is forecast to raise shareholder payouts by 9% next year as its bottom line is due to rise by around 8%. The latter figure puts it on a price-to-earnings growth (PEG) ratio of 1.6, which suggests that it could deliver improved capital growth potential. Even with such a strong growth in dividend payments, its dividend coverage ratio is expected to remain high at almost 2.
Therefore, even though its cost pressures remain high, it could deliver improving financial performance. For income investors, its mix of dividend growth and a high yield could make it a strong proposition for the long run.
A changing business
Additionally, HSBC could deliver dividend growth to go alongside its inflation-beating dividend yield. The company is in the process of undergoing major change as it seeks to reposition itself for improved earnings growth. It is seeking to become more efficient through cost reductions, with its cost-to-income ratio being high compared to some of its sector peers. It will take some time for it to deliver all of its efficiency savings, but they could help to boost its earnings growth rate in the long run.
As well as cost savings, continued growth in demand for HSBC’s services in Asia could provide a tailwind for its bottom line as well as its dividends in future. With dividends covered 1.3 times by profit, they could increase at a similar rate to profit in the long run. As such, now could be the perfect time to buy the stock ahead of potentially rising profitability and dividends. And since it operates across the globe, it continues to offer a relatively low risk profile compared to some of its sector and index peers.
Peter Stephens owns shares of HSBC. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.