Why HSBC Holdings plc’s Dividend Could Be At Risk, While Barclays PLC’s And Lloyds Banking Group PLC’s Look Solid

HSBC Holdings plc (LON: HSBA), Barclays PLC (LON: BARC) and Lloyds Banking Group PLC (LON: LLOY) show that not all banking dividends are the same.

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.

If you look at the headline figures, you could be forgiven for thinking that FTSE 100 banking dividends are much of a muchness.

The annual yield at HSBC Holdings (LSE: HSBA)(NYSE: HSBC.US) has been holding up and is forecast to provide 5.6% this year and 5.8% next, which is about the best there is amongst the banks. But at Barclays (LSE: BARC)(NYSE: BCS) the cash has been recovering well and should yield around 4% by 2016, and we should even seen the bailed-out Lloyds Banking Group (LSE: LLOY) storm back to a predicted 4.8% yield the same year.

What lurks beneath

On that score we’re seeing some convergence, but scratch the surface a little and things soon start to look different. Just look at dividend cover for a start — Barclays’ 2016 dividend should be covered about 2.7 times by forecast earnings, with Lloyd’s 2016 payout a bit more than twice covered despite its rapid rise. But at HSBC, the City is expecting cover of only 1.6 times.

Now that’s not too bad in its own, as a healthy bank with a good future can easily maintain modestly covered dividends for a few years if necessary, but the future for these three banks do not look to be going in the same direction.

Liquidity at Lloyds has improved dramatically and the bank really does look to be out of the woods in terms of bad debts and costs. And while Barclays has continued to face a few hurdles related to misbehavour (including fines for its part in fiddling the Libor rate), it too is seeing its performance figures steadily improving.

A struggling bank

But look at HSBC. Some of its pre-crisis acquisitions turned out badly, although it wasn’t the only bank to make mistakes there. But it’s gone on to face money-laundering accusations, and is also up against allegations that its Swiss bank was encouraging its wealthy clients to evade tax.

HSBC is still struggling to control costs, is laying off thousands of employees and is dumping assets. In short, it really is just a holding company that owns lots of worldwide banks, and it doesn’t seem to be adding any synergistic benefits that would make it any more than the sum of its parts. Add to that that the company’s home market of China is in a stock market bubble akin to the dot com days in the west, which is sure to burst some time, and HSBC doesn’t look like a solid long-term income investment any more.

Biggest isn’t always best

No, when I’m looking for dividends, I’d always go for a sustainably progressive one ahead of today’s best short-term yield.

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.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and 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

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »