Banking giant HSBC Holdings (LSE: HSBA) shares are paying a chunky dividend. And City analysts expect double-digit percentage increases in the payment ahead.
With the stock near 627p, the forward-looking yield is running just above 8% for 2023. And the anticipated dividend for 2024 is more than 26% higher.
Meanwhile, the stock has been trading within a small range since February 2023. And that presents investors with an opportunity to dig into the company and its business with further and deeper research.
I’m optimistic about the prospects for HSBC. And the stock attracts me now because the business could do well in a new period of general economic prosperity in the years ahead.
But it’s worth bearing in mind that banking and financial businesses are notoriously cyclical. And if macroeconomic and geopolitical events cause a deterioration in the outlook, HSBC’s business will likely suffer. In a scenario like that, we could see the share price move lower.
A positive outlook
However, in August 2023 with the half-year results report, chief executive Noel Quinn was upbeat about the prospects for the business. HSBC delivered a “strong” performance in the first half of the year.
Quinn was “confident” the firm can achieve it’s revised mid-teens return-on-tangible-equity target in 2023 and 2024. But City analysts predict an essentially flat result on earnings for 2024. So growth is not set to blow the lights out.
Nevertheless, Quinn said the company achieved “broad-based” profit generation around the world in the period. And that was driven by higher revenue in the firm’s global businesses.
Those positive financial results arose because of “strong” net interest income, and continued tight cost control.
Looking ahead, Quinn acknowledged the many ongoing challenges in the global economy but declared confidence about the future for HSBC. The next phase of the company’s strategy focuses on opportunities to “drive value creation, diversify revenue and retain tight cost control”.
Toppy earnings?
But earnings have been high for some time. And there is a risk that lower earnings may follow, particularly if interest rates cycle down again creating a less-favourable environment for banking businesses.
With any potential stock investment, there’s always uncertainty to consider. But in the case of HSBC now, I’m encouraged by the robust dividend increases forecast ahead. And that inclines me to give the company the benefit of the doubt.
My approach would not involve piling into the stock in a big way. But given spare cash to invest, I’d likely dip my toe in the water with a small starter position in the shares. If the investment performed well, I’d consider adding more later.
The banking sector is difficult to gauge because of its cyclicality. But HSBC Holdings is worth deeper research now with a view to including some its shares in a diversified long-term portfolio.
