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HSBC Holdings plc is one FTSE 100 dividend stock I’d buy straight away

The last few years have been generally disappointing for HSBC (LSE: HSBA). The company has struggled with escalating costs, an inefficient business model and limited growth in key markets. This has caused its bottom line to fall, with it being down 43% on a per share basis in 2017 versus its 2013 level.

However, with the bank now having a relatively high dividend yield as well as a new strategy, it could prove to be a strong performer. As such, buying it now could be a sound move from an income perspective.

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Changing business

HSBC is in the process of making major changes to its business model. As well as a new management team, it is currently seeking to capitalise on the changing growth outlook for various parts of the world economy. For example, it is focusing to a much greater extent on the Asian economy, where demand for its services is increasing at a faster pace relative to other regions. This is likely to act as a positive catalyst on its growth rate and could help it to overcome what continue to be relatively high costs compared to a number of its sector peers.

Although progress is being made in making the company more efficient, there is still a long way to go. However, with positive earnings growth forecast in each of the next two years, its financial outlook appears to be increasingly positive.

Income prospects

Increasing profitability should help to create a more sustainable dividend. With shareholder payouts expected to be covered 1.4 times by profit in the next financial year, there seems to be scope for them to rise after a number of years of stagnation. This could help to improve the appeal of the company from an income perspective, and may create additional demand from investors who remain concerned about global inflationary pressures.

Therefore, while still an improving business, HSBC appears to be an enticing income option within the FTSE 100. Its dividend yield of 5.6% suggests that it not only has a high income return, but also offers an attractive valuation at the present time.

Promising outlook

Also offering impressive dividend potential is Sirius Real Estate (LSE: SRE), an operator of branded business parks providing flexible workspace in Germany. The company released a trading update on Monday which showed that it has experienced strong tenant demand during the year to 31 March. Alongside specific asset management initiatives, this has generated an encouraging increase in organic rental growth from its business parks.

With the company’s like-for-like (LFL) annualised rental income increasing by over 5%, the business seems to be enjoying robust trading conditions. It is forecast to post a rise in earnings of 12% this year, followed by further growth of 26% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1.7, which suggests that it has high capital growth potential.

A rising bottom line also means that Sirius Real Estate could boost its dividend payments. Since it already yields nearly 5%, it could become a rather attractive income stock in the long term.

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Peter Stephens owns shares of HSBC Holdings. 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.

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