I’m searching the FTSE 100 for the best dividend stocks to buy for long-term passive income. And this banking giant — with its dividend yields that sail above the 3.8% UK blue-chip average — is high on my shopping list.
Here’s why I’ll be looking to buy when I have extra cash to invest.
Emerging market giant
Banks like HSBC Holdings (LSE:HSBA) are among the most economically-sensitive out there. When consumers and businesses find things tough, revenues can dry up and credit impairments can soar.
But things are looking better for this FTSE 100 bank than for other blue chips like Lloyds and Barclays. This is thanks to its focus on the Asia-Pacific market, where the economic outlook is more robust than in the West.
Rapid growth
Fresh forecasts from the World Bank illustrate. The body expects growth in HSBC’s core East Asia and Pacific regions to strengthen to 5.5% in 2023 from 3.5% last year. By comparison, the World Bank thinks global growth will slow 1% year on year to just 2.1%.
China’s economy is tipped to soar following the end of Covid-19 lockdowns. But this is no short-term fluke. The Asian powerhouse is expected to greatly outperform Western economies for the next decade as well.
This provides a world of opportunity for businesses like HSBC. Financial services product penetration in the region is low. And as the middle class rapidly increases, demand for banking, protection, and wealth-related services should also balloon.
HSBC is ploughing huge amounts of capital into its Asian operations to capitalise on this opportunity too. It allocated 47% of its tangible equity to the region in 2022, up 5% year on year. The bank plans to increase this proportion to 50% in the medium to long term.
BIG dividends
This is a positive sign for earnings and dividends in my book. But investors in the FTSE-listed bank likely won’t have to wait long to receive large streams of dividend income.
In fact, the business has been rebuilding shareholder payouts at an impressive pace since pandemic-hit 2020. City analysts expect this trend to continue, too.
Last year’s total dividend of 32 US cents per share is tipped to increase to 57 cents and 70 cents in 2023 and 2024 respectively. This means that yields for these years sit at 7.5% and 9.2%, way above the FTSE 100 average.
HSBC looks in great shape to meet these forecasts, too. Dividend cover sits at a healthy 2.3 times and 1.9 times during the next two years. Any reading around two times (or above) provides a wide margin of safety for investors.
On top of this, the bank also has a robust balance sheet that could help it fund big dividends if profits disappoint. Its common equity tier 1 (or CET1) ratio rose to a robust 14.7% in the first quarter.
HSBC has the brand strength and scale to thrive in its fast-growing markets. I think it’s a great buy for investors seeking long-term passive income.
