Are HSBC Holdings plc and Barclays plc good dividend stocks?

Edward Sheldon examines whether shares in HSBC Holdings plc (LON: HSBA) and Barclays plc (LON: BARC) should be bought for their dividends.

| 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.

HSBC (LSE: HSBA) and Barclays (LSE: BARC) have traditionally been popular dividend stocks for UK investors. But are these banks still good dividend investments now? Let’s take a look.

HSBC Holdings

There’s no doubt that HSBC’s dividend yield of 6.3% catches the eye as it’s the highest yield among the UK banks and one of the highest yields in the FTSE 100 index. But high yields can be dangerous and often indicate that a dividend cut may be on the horizon. So the question to ask in regards to HSBC is whether the high yield is sustainable?

One of the first things a dividend investor should do is take the time to investigate the company’s dividend policy. Here’s a statement taken from HSBC’s website: “In the current uncertain environment we plan to sustain the dividend at its current level for the foreseeable future. Growing our dividend in the future depends on the overall profitability of the Group, delivering further release of less efficiently deployed capital and meeting regulatory capital requirements in a timely manner.”

So HSBC plans to continue paying 51 cents per year for the foreseeable future. Is this realistic? Take a look at the table below.

Year

Earnings per share

Dividend per share

Dividend cover

2016

7c

51c

0.14

2015

65c

51c

1.27

2014

69c

50c

1.38

2013

84c

49c

1.71

2012

74c

45c

1.64

The table shows that 2016 was a poor year for HSBC with profitability dropping significantly. As a result, the bank’s dividend cover – a metric used to judge a dividend’s sustainability – looks dangerously low at 0.14, indicating that the dividend might not be safe.

So for me, from a dividend investing perspective, HSBC should be approached with caution. The headline yield looks attractive, especially in the current low rate environment, but I’d be looking for a boost in profitability before committing to the bank for its dividend. 

Barclays

Rival Barclays is in a different position to HSBC in that it has already cut its dividend, announcing in March last year that the payout for 2016 would be slashed by more than half. 2016’s dividend of just 3p per share leaves Barclays’ yield at an underwhelming 1.4%, a level which is unlikely to appeal to most income investors.

Barclays is currently undergoing a significant restructuring, dumping non-core assets with the intention of creating a “simplified transatlantic, consumer, corporate and investment bank.” The key question for income hunters is whether the new-look Barclays will be capable of increasing its dividend payout in the future. City analysts certainly think so, with consensus dividend estimates for FY2018 sitting at a high 8.1p, however, to my mind, those estimates look a little optimistic. 

If Barclays can register an improved financial performance, I would not be surprised to see a small dividend hike in 2018. But for now, with the yield sitting at a low 1.4%, I believe there are better dividends on offer elsewhere. 

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.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

3 ISA strategies to consider in 2025

This Fool believes that when it comes to building wealth through an ISA portfolio, there are three basic approaches worth…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

7 top tips to consider for an £88k passive income!

A regular monthly investment in trusts or shares could yield a stunning passive income in retirement. Here's how an investor…

Read more »

Stack of one pound coins falling over
Investing Articles

2 penny shares I think could shine in 2025

I have my eye on a few penny shares, as I'm thinking that the year ahead could turn out to…

Read more »

Investing Articles

2 ISA strategies for success in 2025

The ISA is a great vehicle for our investments, sheltering our returns from tax and providing us with the opportunity…

Read more »

Investing Articles

Here’s how an investor could start building a £10,000 second income for £180 per month in 2025

Our writer illustrates how an investor could put under £200 each month into shares and build a long-term five-figure passive…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Here’s how I’m finding bargain shares to buy for 2025!

Our writer takes a fairly simply approach when it comes to hunting for cheap shares to buy for his portfolio.…

Read more »

A graph made of neon tubes in a room
Investing Articles

Up 262%! This lesser-known energy company is putting other S&P 500 stocks to shame

Our writer delves into the rationale behind the parabolic growth of this under-the-radar S&P 500 energy company. The reason isn’t…

Read more »

Investing Articles

Just released: December’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »