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Tesco v HSBC: which FTSE 100 dividend stock should you buy today?

If you’re on the hunt for great dividend growth then broker estimates suggest that Tesco (LSE: TSCO) is a stock to give close attention to.

Having sailed through the extreme profits pain it experienced during the mid-point of the decade, in fiscal 2018 Britain’s biggest supermarket was able to resurrect its dividend policy by paying out a 3p per share full-year reward.

It’s expected to raise it to 5p for the 12 months to February 2019 amid expectations of further double-digit-percentage earnings expansion. And the number-crunchers are expecting more chubby profit rises to keep driving payouts skywards over the next couple of years at least: dividends of 7.3p and 9p per share are predicted for fiscal 2020 and 2021 respectively, estimates that yield 3.1% and 3.9%.

Profits pressures to persist?

Despite these inflation-beating figures, though, I’m not tempted to touch Tesco with a barge pole right now.

Why? The intensifying fragmentation of the British grocery sector casting a pall over its long-term profits outlook.

The FTSE 100 firm was given rare cause for cheer last month after the competition watchdog threw a spanner in the works of the planned Sainsbury-Asda merger, but it’s no guarantee that the potentially game-changing deal is dead and buried. Indeed, its Big Four rivals remain determined to get the deal over the line, pledging customer savings worth £1bn each year as well as the sale of 150 supermarkets and 38 petrol stations.

Irrespective of the fate of the mega-merger, though, Tesco still has its hands full because of the expansion of Aldi and Lidl in particular. With sales at the discounters still booming, most recent Kantar Worldpanel market data showed the FTSE 100 grocer’s market share fall to below 28% as of February 25.

Clearly Tesco will have to undergo additional rounds of extensive, profits-crimping discounting to fight back against its rivals, and for this reason I’m happy to avoid it today.

This 6%-yielder is a superior selection

Would HSBC Holdings (LSE: HSBA) be a better bet for income investors, then?

Dividends aren’t expected to swell at the same breakneck pace at those over at Tesco — not at all, in fact — but yields are much chunkier. These sit at 6.3% for both 2018 and 2019 thanks to predicted payments of 51 US cents per share.

And I consider the long-term profits outlook at HSBC to be much better than that of the other Footsie share under consideration today, putting it in much stronger shape to keep paying above-average dividends long into the future.

Time and again I’ve lauded the bank’s brilliant earnings outlook thanks to its extensive Asian operations, so I was delighted to see that business continues to grow at a brisk pace despite some economic softness more recently. Adjusted revenues in these far-flung regions increased 11% in 2018, and it’s more than likely that exploding wealth levels amongst Asian citizens will prove the bedrock for spectacular returns for HSBC shareholders in the years ahead.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Tesco. 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.