Here’s why I think you can retire on the HSBC share price

With its international operations and track record of returning cash to investors, the HSBC share price could pay you for life, says Rupert Hargreaves.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

HSBC (LSE: HSBA) is one of the world’s largest banks, and it’s also one of the world’s most diversified. Even though the group generates the majority of its profits in Hong Kong, HSBC also has substantial operations across Europe, the UK and the USA. That’s as well as its South American division.

In my opinion, this international diversification gives the bank a considerable advantage over other companies. For example, in recent years, management has been taking money from its European operations and investing it into the Chinese business, where it sees more opportunity for growth over the long term.

These efforts have helped HSBC generate huge profits while European and UK peers struggle. Last year, the bank earned $14bn of net income on revenues of $71bn. That’s more profit than Barclays, Lloyds and Royal Bank of Scotland generated altogether.

Improving profits

HSBC is looking to enhance profits further over the next few years. Under the stewardship of interim CEO Noel Quinn, the bank is planning to slash 10,000 jobs around the world, on top of the 4,700 redundancies announced earlier in the year.

HSBC employes 268,000 staff around the world and the group generates 80% of its profits in Asia. The axe is expected to fall on staff in Europe, where negative interest rates and depressed economic activity have hit returns. City analysts reckon as many as 17% of the bank’s employees could be let go under this new plan.

While this is bad news for staff, it seems to be the right decision for the HSBC. Since the financial crisis, the banking industry has been struggling to deal with the new regulations, increasing competition, and the rise of technology. On top of this, ultra-low interest rates have weighed on profits.

The good news is HSBC has size on its size. The bank has been able to remain so profitable while peers struggle, thanks to economies of scale and, as mentioned above, its international diversification.

Buy-and-forget

These are the primary reasons why I think you can retire on the HSBC share price. The bank is so large it’s a critical component in the global financial system. Even in the event of a major economic depression or recession, there will still be clients who look to the bank to provide services thanks to its size and financial stability. Indeed, compared to the rest of the global financial services industry, HSBC pulled through the last financial crisis with relative ease.

However, despite its competitive advantages and position in the global banking industry, today you can pick up shares in HSBC for just 10.7 times forward earnings. On top of this, the stock offers a dividend yield of 6.6%. The payout is covered 1.4x earnings per share and management has also been returning cash to investors with share buybacks recently as well.

As profits continue to expand, I think there’s a good chance further cash returns could be on the cards going forward.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. 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.

More on Investing Articles

Investing Articles

3 of my top FTSE 250 stocks to consider buying before April

Buying undervalued UK shares can be a great way to generate long-term wealth. Here, Royston Wild reveals a handful on…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »

Investing Articles

£12K in savings? Here’s how I could turn that into £13K annual passive income

This Fool explains how investing a lump sum can help her build a passive income stream to enjoy in her…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s why Rolls-Royce shares are now set to fly over the £4 mark

Once again, Rolls-Royce shares are crushing the FTSE 100. Should I add to my holding of this stock at the…

Read more »

Investing Articles

1 under the radar FTSE 100 AI stock investors should consider buying

Our writer explains why this FTSE 100 pick could be a shrewd investment with its established experience of using AI…

Read more »

Investing Articles

Does the beaten-down Diageo share price make it a no-brainer buy?

Harvey Jones spent years waiting for the Diageo share price to look like good value, before finally buying it in…

Read more »