The HSBC Holdings (LSE: HSBA) share price offers excellent all-round value based on current forecasts, in my opinion. At around 470p per share it trades on a forward price-to-earnings (P/E) ratio of 6.9 times.
The FTSE 100 bank’s current dividend yields, though, are what really catch my attention. Predicted payouts for 2022 and 2023 leave it yielding 5.4% and 8.3% respectively.
Here’s why I’d buy HSBC shares if I had cash to spare.
Robust forecasts
First it’s worth considering the probability of the company meeting broker forecasts. Based on dividend cover it seems like current estimates look pretty realistic.
The City thinks HSBC will raise 2021’s dividend of 25 US cents per share to 29 cents this year. It is predicted to grow strongly to 44 cents in 2023, too.
At the same time, earnings are predicted to be 76 cents this year and 94 cents next year. This leaves dividend cover ranging between 2.1 and 2.6 times. A reading of 2 times and above provides a decent margin of safety.
Dividend forecasts are also boosted by the strength of the bank’s balance sheet. Its common equity tier 1 (CET1) ratio stood at a healthy 13.6% as of June.
The company might also execute further asset sales to boost its balance sheet. Earlier in October it announced it was exploring the sale of its Canadian operations. Any deal could raise between $7bn and $10bn for its coffers.
Growth hero
I like the look of HSBC’s dividend forecasts. However, the prospect of bulky payouts in 2022 and 2023 aren’t enough on their own to coax me to buy. I haven’t been tempted to buy Lloyds and Barclays shares, for example, despite their own market-beating dividend yields.
But HSBC’s big yields add an attractive plank to its already-appealing investment case. Those earnings forecasts suggest annual growth of 24% and 23% in 2022 and 2023 respectively.
It’s my opinion that the bank’s focus on Asia will deliver exceptional long-term earnings growth, too.
Looking to Asia
HSBC sources the lion’s share of profits from Asia. And it is aggressively pivoting towards this continent for future growth.
It will spend $6bn over the next five years in areas like wealth management and commercial banking. The aim is to deliver “double-digit growth” by capitalising on low product penetration and soaring wealth levels in emerging markets in the region.
According to reports, HSBC is flirting with moving its headquarters from London to somewhere in Asia. This is symbolic of where the company sees its future. The sale of non-Asian assets like its Canadian operations would give it extra financial clout to invest into the region, too.
I’d buy HSBC shares
This isn’t to say that everything about HSBC is positive. The introduction of fresh Covid-19 lockdowns in China would pose a significant threat to its profitability. So would a continued deterioration in the country’s real estate sector.
However, it’s my belief that the potential rewards of owning the bank outweigh the risks. And given the cheapness of HSBC’s share price today I think it’s a top buy.
