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Have £1,000 to invest? FTSE 100 5% yielder HSBC could help you retire early

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While the FTSE 100 may have risen significantly in recent years, the prospects for a number of shares including HSBC (LSE: HSBA) continue to be upbeat. In fact, the bank is in the process of delivering a new strategy which could allow it to generate high earnings and dividend growth over the medium term.

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Future potential

The company in question is housebuilder Bellway (LSE: BWY). Its share price declined by 3% on Wednesday despite reporting positive trends in the UK housing market. Demand has remained robust, with mortgage availability being high and the government’s Help to Buy scheme providing support for first-time buyers trying to get onto the property ladder.

These factors allowed the company to deliver a record level of completions, which rose by 6.9% to 10,307. Further growth is anticipated by the business over the medium term, with an anticipated operating margin of 22% suggesting that its financial performance remains sound.

With Bellway currently having a dividend yield of around 5%, it appears to offer a sound income outlook. However, the capacity for it to pay a higher level of dividend to its investors seems to be high. Dividends in the current year are due to be covered over three times by profit. Alongside an upbeat outlook for the industry in terms of supply versus demand, this could lead to a rapid rise in dividends that could boost your retirement prospects.

Changing business

HSBC’s dividend growth potential also appears to be improving. The bank is in the process of putting in place a refreshed strategy which will see it divert its resources to expansion in Asia. This seems to be a logical move, given that countries such as China offer significantly higher GDP growth than the wider global economy. This could stimulate the company’s bottom line, which in turn may lead to a higher dividend over the medium term.

While HSBC’s costs have been a cause for concern in recent years, the company has the potential to become more efficient in future years. At present though, its focus is on investing for future growth, and this seems to be a sound strategy given the positive outlook for the world economy.

With a dividend yield of 5.3% and dividend cover of 1.4, the prospects for dividend growth seem to be bright. A price-to-earnings (P/E) ratio of around 14 suggests that there could also be a margin of safety on offer. As a result, the total return prospects of the bank could be stronger than those of the FTSE 100, with it having the potential to beat the wider index over 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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