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Have £1k to invest for a second income? I’d buy FTSE 100 dividend stock HSBC today

While the FTSE 100 offers a 4.5% dividend yield at the present time, it is possible to generate a significantly higher income return elsewhere. For example, HSBC (LSE: HSBA) has a yield of around 6.2%. It may also offer dividend growth potential as it delivers on its current strategy, and seeks to invest in growth opportunities.

Of course, it’s not the only stock that could offer an impressive income return. Reporting on Thursday was a FTSE 250 dividend share which may offer a growing level of income over the medium term.

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Growth potential

The company in question is housebuilder Bellway (LSE: BWY). Its trading update showed that demand has continued to be robust in the first six months of its financial year, with revenue expected to be 12% ahead of the same period of the prior year at £1.5bn. Volume growth of 5.6% was a factor in rising sales, while the average selling price of £293,800 was 6.5% higher than in the comparable period.

While there are concerns surrounding the prospects for the UK economy, the company delivered a record sales performance in the first six months of the year. Its weekly reservation rate increased by 2.8% to 183, which is its highest-ever level in a first-half trading period.

With a dividend yield of 5.1%, Bellway has a relatively high income return. Its dividends are covered three times by net profit, which suggests that it could raise shareholder payouts without hurting its financial standing. Since it has a modest net debt of £26.6m, its long-term future appears to be robust. As such, it could offer income investing potential.

Income appeal

As mentioned, HSBC’s dividend yield is ahead of the FTSE 100. One reason for this is the disappointing share price performance recorded by the global bank in the last year. It has fallen by 11% during that time, while the FTSE 100 is flat. With the company having decided to focus a larger proportion of its capital on Asia, continued fears about the prospects for China’s economy may have contributed to investor unease regarding the company’s future.

Those concerns may remain in place during the course of 2019. The world economy faces an uncertain period which could include further protectionist policies from the US and China, as well as a negative impact from a rising US interest rate.

HSBC’s share price, though, appears to include a margin of safety. The stock has a price-to-earnings (P/E) ratio of around 11. With its bottom line due to rise by 5% this year, it appears to have a sound near-term outlook. And since dividends are covered 1.5 times by profit, there seems to be sufficient headroom when making payments to shareholders to provide a resilient income outlook. As such, the stock could deliver impressive income returns over the long run, and now may prove to be an opportune moment to buy it.

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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.