Global banking giants HSBC (LSE: HSBA) (NYSE: HSBC.US) and Standard Chartered (LSE: STAN) have long been magnets for those seeking access to reliable — and sizeable — annual dividend growth.
Although the payout policy of one of these contenders is expected to disappoint in the coming weeks, City analysts expect the banks’ dividends in 2015 to produce a bumper yield of 5.7%.
HSBC to buck trading scandals
HSBC has dominated global headlines in recent days as the full extent of fraud at its Swiss operations has been laid bare. The bank has conceded it is “accountable for past compliance and control failures,” charges which include advising wealthy clients on how to avoid paying tax, as well as how to conceal assets from the authorities.
And although HSBC has said that it has “taken significant steps over the past several years to implement reforms,” these measures are unlikely to win favour with regulators already seething at previous misconduct by the firm, from the mis-selling of PPI and interest rate swaps through to rigging forex markets.
Of course HSBC faces the prospect of further significant financial penalties owing to these fresh developments. But the number crunchers believe that the fruits of restructuring on the bank’s already-robust cash pile, combined with its weighty exposure to the robust UK economic recovery and lucrative Asian emerging markets, will keep earnings and thus dividends ticking higher in the coming years.
Indeed, the bank is expected to raise a predicted payout of 49.8 US cents per share in 2014 to 53.9 cents this year, an 8% increase. And an additional 9% estimated rise for 2016 pushes the dividend to 58.6 cents. Consequently 2015’s meaty yield rises to an even more appetising 6.2% for next year.
… but StanChart’s payout profile remains patchy
Like HSBC, Standard Chartered is also being hauled over the coals by regulators over previous misdeeds.
The bank was fined $300m in August by US regulators over inadequate money laundering controls, and was told in December that authorities would be investigating whether the firm continued to breach sanctions by doing business with Iran and other ‘blacklisted’ nations beyond 2007. StanChart has already had to fork out $400m for breaking the rules up until that date.
On top of this, Standard Chartered’s balance sheet is also coming under intense scrutiny as enduring underperformance at its Asian units — the business generates almost all of its profits from this region — continues to weigh. Consequently rumours that the firm will be forced into another humiliating rights issue just won’t go away, a catastrophic scenario for dividend chasers.
As a consequence of these worries, the City expects StanChart to reduce the full-year payment from 86 US cents in 2013 to 80.2 US cents in 2014.
Still, a backcloth of recovering earnings from this year onwards are predicted to underpin a dividend recovery, with rewards of 81.4 cents and 84.6 cents pencilled in for 2015 and 2016 correspondingly. As a result this year’s chunky yield gallops to 5.9% for next year.
However, given the uncertainty over just how StanChart will improve its broken balance sheet, not to mention turn around its ailing foreign businesses and break the string of profit warnings it has issued over the past year, I believe that the bank’s dividend outlook is far cloudier than that of its fellow Asian-focused rival.
