Investing in our FTSE 100 banks 10 years ago would not have been a good strategy with hindsight — and you don’t need me to tell you that!
A £10,000 investment in Barclays back in September 2004 would have been worth only £6,785 a decade later if you reinvested your dividends, but the same in Lloyds Banking Group would have fared considerably worse and would have been reduced to £3,545!
Looking East
Today I’ve turned my attention to HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US), and it makes a pleasant change to see a bank that would not have lost you money!
With the shares trading at around 764p at the start of the period, dropping to 626p by the end of September this year, you’d have recorded a capital loss of £1,806, turning that original £10,000 into £8,194.
But HSBC managed to keep reasonable dividend payments going, right through the crisis and the recession, as it largely escaped the property-led liquidity crunch that hit the more Western-facing banks. Even at its lowest in 2010, HSBC’s dividend was yielding 3.4%, and it was back up to 4.6% by 2013.
Saved by the dividend
So, though you’d have lost on the share price, you’d have been compensated with £4,151 in dividend cash over the 10 years, taking the value of your investment to £12,344. A 23.4% profit over a decade is nothing to get excited about, but it’s a lot better than a loss.
But what would have happened if you’d reinvested your dividend cash instead of spending it?
With Barclays we saw that would have lost you some money, as the share price is still a long way down from its pre-crash levels and you’d have been reinvesting at average prices some way above today’s.
But HSBC’s price is doing better, and you’d have actually made a slight profit by reinvesting, of £457. It would take your initial £10,000 up to £12,802, for a 28% gain.
The next ten
That’s clearly not a great return for a 10-year investment, but it’s on a par with savings account levels. And you really wouldn’t have been too badly off if you’d had one allotment of, say, a 10-stock portfolio in HSBC. And looking forward, where you’d have started the last decade with 1,300 shares, you’d be heading into the next 10 years with 1,980 of them.
I have three more banks to go, and it’ll be interesting to see how they’ve fared as a whole over this turbulent period.
