Can HSBC Holdings plc Be A Dividend Champion For 2015 And Beyond?

G A Chester assesses HSBC Holdings plc (LON:HSBA)’s prospects as a potential dividend dynamo?

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Whether you take your dividends as income or reinvest them, the sustainability and future growth rate of the payout will be crucial to your returns.

Today, I’m assessing FTSE 100 bank HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) as a potential dividend dynamo.

The basics

HSBC pays quarterly dividends. The dividends are set in US dollars (the company’s reporting currency) and converted to sterling shortly before payment.

Should you invest £1,000 in Bluefield Solar Income Fund Limited right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Bluefield Solar Income Fund Limited made the list?

See the 6 stocks

HSBC has a fairly common-or-garden “progressive” dividend policy — director vocabulary for an aim to deliver a (non-specific) increase in the annual dividend.

Track record

HSBC had punched 15 years of double-digit (dollar) dividend growth before the financial crisis hit in 2008. The table below shows the company’s record from its high-water payout year of 2007 through to 2013.

  2007 2008 2009 2010 2011 2012 2013
Dividend per share 90¢ 64¢ 34¢ 36¢ 41¢ 45¢ 49¢
Dividend growth +11% -29% -47% +6% +14% +10% +9%

As you can see, HSBC slashed its dividend in 2008 and 2009. But from the new lower base, and with economic recovery, the company had returned to double-digit increases by 2011.

This time last year, analysts were forecasting further double-digit growth for 2013, having pencilled in a dividend of 51¢. In the event, the company paid 49¢. Management noted that the impact of an increase in the government’s bank levy “represented 5¢ per share which would otherwise have been available for distribution to shareholders or retained to strengthen the capital base or support incremental growth”.

Future prospects

The consensus forecast from City analysts is for a 6% increase in HSBC’s dividend this year to 52¢, followed by another 6% rise in 2015, to 55¢.

The forecasts reflect a number of headwinds HSBC faces: namely, regulatory burdens, fines and compensation for past transgressions, and weakness in emerging markets. Looking further ahead, while regulatory costs are an ongoing headwind, fines and compensation ought to have subsided to a gentle breeze after another couple of years, and emerging markets should, sooner or later, revert to a compass point that provides a long-term tailwind for HSBC.

In my view, analysts’ dividend forecasts for the next couple of years may prove to be a little optimistic (as they were last year), but longer-term earnings prospects could support sustainable annual dividend increases of perhaps mid- to high single-digits.

This sounds about right under a regulatory regime that would make banks safer than in the past without hamstringing profit-making potential to the extent that the reward for equity risk became unattractive for investors.

If my assessment is on the mark, HSBC looks an attractive prospect on a trailing dividend yield of 4.7% (at a current share price of 630p), compared with 3.5% for the FTSE 100 as a whole.

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

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.

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Older couple walking in park
Investing Articles

Could £300 a month invested in US and UK shares reach a million by retirement?

Could an investor retire with a million pounds just by dedicating £300 a month to US and UK shares? Mark…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

Is £800 enough to start an ISA?

Is it worth bothering with an ISA with less than £1,000 to spare? This writer believes it may be --…

Read more »

Investing Articles

3 reasons Tesla stock may be a long-term bargain

This writer is keen to buy Tesla stock at the right price. He doesn't think it's there yet -- but…

Read more »

Investing Articles

Nvidia stock is a lot cheaper than before – or is it?

Nvidia stock has been caught in the whirlwind of market volatility. This writer has been waiting to buy, so might…

Read more »

Top Stocks

3 FTSE stocks Fools are eyeing up for choppy markets

A selection of companies listed on the UK stock market on the watchlists of four Foolish investors.

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

A £10,000 investment in Rolls-Royce shares last week is now worth this…

Harvey Jones says Rolls-Royce shares couldn't escape the volatility of recent weeks, but wonders if the recent dip is a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Prediction: in 2 years these S&P 500 stocks will be much higher than they are today

These two S&P 500 stocks have been beaten down in recent weeks. But Edward Sheldon expects them to move much…

Read more »

Investing Articles

10% yields! Why a volatile stock market is great news for passive income investors

The recent stock market volatility has given passive income investors the chance to earn double-digit returns. But they still need…

Read more »