It’s the start of a new year and I want to generate some extra income in 2024. Therefore, I’m looking for a dividend stock that can provide me with a high yield.
There are some great shares to choose from in the FTSE 100. For example, Lloyds Banking Group and Barclays have dividend yields of 6.8% and 6.5%, respectively.
However, HSBC (LSE:HSBA) caught my attention recently. It has a dividend yield of 6.9%, making it a better opportunity to make some passive income than most shares.
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The dividend
The shares currently trade at £6.34. Therefore, an extra 43p of income can be made annually per share that’s purchased.
With a total outlay of £52,174 on 8,223 of its shares I could make an extra £300 per month. However, I appreciate this is an extremely large sum of money, and I wouldn’t want to make my portfolio quite so unbalanced and undiversified, of course!
It’s important to keep in mind that dividends aren’t guaranteed, but if I were to reinvest this extra money into buying more of its shares, this amount could grow greatly over time.
Furthermore, the yield provided by HSBC easily beats the meagre (in comparison) 3.8% provided by the FTSE 100 overall.
A truly international company
What I like about HSBC is its wide international exposure.
It’s the largest bank in Europe in terms of total assets of $3trn. However, it has also identified high-growth regions in Asia in which it plans to ramp up investment.
One of these countries is China, which has seen its property market suffer recently. It has $13.6bn invested there. This would be a cause for concern if I were to buy its shares as it could result in write-downs for the bank (which has been the case in recent quarters). The geopolitical tensions between China and the West don’t help either.
However, I believe the slump in the Chinese property sector is only temporary. HSBC’s CEO Noel Quinn agrees, stating that the worst is over. Once it recovers (assuming it does), China could be very lucrative again.
Moreover, the Asian commercial banking sector is expected to grow from $3bn in 2022 to $16.3bn by 2031, presenting a great growth opportunity.
HSBC has doubled down on its decision to expand into Asia with its purchase of Citigroup’s Chinese wealth management business back in October 2023. This could be very rewarding for shareholders.
Now what?
Even aside from its investments in Asia, HSBC is faring pretty well in the high-interest environment. Revenue and earnings soared by 45% and 146%, respectively, in the latest quarter.
This helped its shares rocket by 18.5% in 2023, trouncing the Footsie’s 1.9% return in the same period.
It still, however, trades at a very cheap level, with a price-to-earnings (P/E) ratio of 5.9. I think this is a bargain for a company with a dividend yield of 6.9%.
Moreover, I see strong dividend growth ahead, as I believe the opportunity in Asia can provide a sustained path to earnings growth. Therefore, if I had the spare cash to do so, I’d buy HSBC shares today.
