Should You Buy Into These 5%+ Yielders? HSBC Holdings plc, BHP Billiton plc And Ashmore Group plc

Royston Wild debates whether income seekers should stash their cash in HSBC Holdings plc (LON: HSBA), BHP Billiton plc (LON: BLT) and Ashmore Group plc (LON: ASHM).

| 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.

Today I am looking at the payout prospects of three London-listed high yielders.

HSBC Holdings

Banking mammoth HSBC (LSE: HSBA) (NYSE: HSBC.US) has given investors little reason for cheer over the past year or so due to a combination of persistent revenues pressure and fears over escalating legal bills. It is the latter in particular which continues to shake the markets, so Standard and Poor’s recent warning that HSBC, together with Barclays, RBS and Lloyds face £19bn worth of misconduct charges between them through to the end of 2016 will have done nothing to calm the nerves.

The issue of mounting financial penalties is likely to remain a concern for some time to come, particularly as the activities of its Swiss division draws ire from regulators across the globe. Still, I believe that the bank’s huge footprint in emerging regions — HSBC draws 70% of pre-tax profit from Asia, the Middle East and North Africa — should deliver solid earnings, and with it dividend, growth in the coming years. As well, the bank’s healthy CET1 capital ratio of 11.2% should soothe shareholder concerns over the payout, while further asset divestments and cost-cutting should boost cash reserves further.

Should you invest £1,000 in Computacenter Plc 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 Computacenter Plc made the list?

See the 6 stocks

In the meantime, the City expects a 25% earnings boost in 2015 to propel the full-year dividend from 50 US cents last year to 53 cents, producing a chunky yield of 5.3%. And a 6% bottom-line boost in 2016 is predicted to support a payment of 55 cents, resulting in an appetising 5.5% yield.

BHP Billiton

I am convinced that persistent pressure across BHP Billiton’s (LSE: BLT) core markets will lead to a significant deterioration in the digger’s payout prospects. Although the company, alongside Rio Tinto and Vale, seems content to run its iron ore competitors into the ground by flooding the market with low-cost supply, when you factor in the effect of chronic oversupply across the copper, coal and petroleum sectors, the earnings outlook looks for the business is less than promising.

These problems are expected to drive earnings 46% lower in the 12 months ending June 2015, and an extra 16% drop is forecast by the number crunchers in 2016. Yet despite these problems, BHP Billiton is predicted to keep the annual dividend hurtling higher, and last year’s 121-US-cent-per-share reward is expected to climb to 127 cents in 2015 and to 134 cents next year. Consequently the mining play sports gigantic yields of 5.2% and 5.5% for 2015 and 2016 correspondingly.

But these figures simply don’t add up, in my opinion. Like its major mining peers, BHP Billiton is desperately scaling back on capital expenditure and selling off assets to strengthen the balance sheet. And with this year’s estimated dividend covered just 1.2 times by prospective earnings, well below the security watermark of 2 times, and next year’s payment actually exceeding predicted earnings of 122 cents per share, I believe investors can take these dividend projections with a rather large pinch of salt.

Ashmore Group

Unlike BHP Billiton, I reckon that Ashmore (LSE: ASHM) is in great shape to keep its progressive dividend policy rolling. An emphasis on emerging markets has seen investor appetite dwindle more recently due to cyclical problems in these places, an issue which has also hit product performance — indeed, assets under management dropped 4.1% during January-March, to $61.1bn.

Still, the City’s band of analysts expect Ashmore to lift a payment of 16.45p per share for the year concluding June 2014 to leap to 17.2p per share in the current period, supported by a 9% earnings improvement. And even though the bottom line is anticipated to dip 4% in 2016, Ashmore’s terrific earnings prospects for the coming years — not to mention its exceptional cash-generative qualities — is anticipated to push the payment to 17.9p.

Consequently the investment management play sports bumper yields of 5.4% for 2015 and 5.6% for 2016. Although some market uncertainty remains, particularly as questions remain as to the intentions of the Federal Reserve, a reduction in the size of net outflows suggests that the tide could be turning in Ashmore’s favour. And in the long-term, I believe the rising financial might of the world’s developing nations should underpin long-term earnings and dividend strength at the firm.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation 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.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. 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

Investing Articles

These 4 FTSE shares have crashed hard. Which do I like today?

These four FTSE 100 stocks have plunged in value over the last month. But after this latest market meltdown, which…

Read more »

Investing Articles

1 FTSE 250 stock that analysts are calling a ‘Strong Buy’

The FTSE 250 can be overlooked by investors, but analysts believe this stock in particular could be undervalued by as…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

I asked ChatGPT to name 5 FTSE shares for the perfect SIPP. Here’s what it picked

Harvey Jones called on ChatGPT to help him decide which shares would be right to buy for a well-balanced SIPP.…

Read more »

Investing Articles

Should I load up on Rolls-Royce shares after the 17% drop?

Rolls-Royce shares have pulled back sharply in the FTSE 100 in recent weeks, leaving this Fool to wonder if he…

Read more »

Investing Articles

Is this the best S&P 500 stock to consider buying in these volatile times?

With bullion prices still rocketing, I think buying the S&P 500's only gold stock is worth serious consideration right now.

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Yielding 7.25% but with a P/E of 186x! What’s up with the BP share price?

Harvey Jones thought the BP share price was a brilliant bargain but it's only brought him a world of trouble.…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Down 26% with a 7% yield! Could this little-known FTSE 250 gem make a comeback?

Mark Hartley considers the long-term prospects of FTSE 250 recruiter Page Group. Weak results have sent the price tumbling but…

Read more »

Investing Articles

Analysts are calling Diageo shares a strong buy! Are they mad?

Analysts still have faith in Diageo shares, with 10 of them giving it the highest possible stock rating. Harvey Jones…

Read more »