The banking sector has not had a good decade, that’s for sure.
But although some of the FTSE 100 banks would have lost you money, we saw recently that Asia-focused HSBC Holdings would have turned a £10,000 investment into £12,800 over ten years. That’s not brilliant, but it is a lot better than the ones crushed by the liquidity crisis.
Even better…
And you’d have done better on the Asian theme if you’d invested in Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) instead.
While HSBC was rescued by dividends, Standard Chartered actually enjoyed a price rise over the decade as well. From a price of 800p on 30 September 2004, its shares climbed to 1,140p ten years later — that’s a capital gain of 42.6%, and it would have turned an initial £10,000 into £14,258.
Standard Chartered shares have fallen back a little since the end of September, to 1,094p as I write, but that’s still 37% up, and still nothing to cry over.
But what about those dividends?
Standard Chartered has been averaging yields of a little over 3% for the whole of the decade, and never had to slash its annual payments like some of the others. The total over 10 years comes to £5,193, which would take your reward to £19,451 — nearly doubled.
Reinvestment
But that’s not the end of the story, because long-term investors who understand the power of compounding will typically not keep the cash, but will buy new shares with it instead. So what difference would it have made if you’d reinvested the cash in more Standard Chartered shares each year instead?
Sadly, the short answer is not a lot.
For reinvesting to work well, you do need a rising share price. Volatility can add to it by helping you buy more shares when the price is low, but Standard Chartered’s volatility has almost all been on the up side. The price was a lot higher before the banking crisis, the 2009 dip was very short with a quick recover, and since 2010 the price has been falling back again.
A reinvestment plan would have added just £77 to your total — and you wouldn’t have achieved that magic doubling.
The next ten
Still, the £19,528 you’d have ended the decade with wouldn’t have been bad, and in place of of the 1,250 shares you originally bought you’d be heading into the next decade with 1,700. And I reckon Standard Chartered shares are looking cheap now.
