As I own HSBC (LSE:HSBA) shares, I’ve a vested interest in the dividend forecasts for the bank.
To see what I might receive in respect of its 2024 and 2025 financial years, I’ve looked at the latest predictions from the 14 analysts covering the stock.
A pattern of erratic payments
A glance at previous returns to shareholders reveals no obvious trend. As with so many others, the pandemic disrupted the financial services industry in a spectacular way.
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However, in 2023, the bank resumed making payments on a quarterly basis.
It’s now settled into a pattern of paying three interim amounts of $0.10 a share (in June, September, and December) with the expectation of a larger final dividend, payable in March the following year.
For its 2023 financial year, the final payment is expected to be $0.34, bring the total amount to $0.64 (50.7p at current exchange rates).
If correct, the stock’s presently yielding a very respectable 8%.
Looking further ahead
Disappointingly, the ‘experts’ are predicting very little change in the payouts for the bank’s 2024 and 2025 financial years — $0.63 and $0.65, respectively.
That’s because earnings are expected to fall as its net interest margin (the difference between the amount earned on loans and that paid on deposits) declines.
This would support the view that in most major economies, interest rates are currently at their peak. And that the next moves will be downwards.
More significantly, there’s an expectation that fee income will fall in 2025, to $29.1bn, compared to 2024 ($33bn).
This is revenue that HSBC earns from maintaining bank accounts as well as debit and credit cards. Fees generated from fund management and currency trading also fall into this category.
It’s not clear why this is expected to fall but, if correct, earnings per share will be lower in 2025 ($1.30) than the expected outcome for 2023 ($1.33).
An additional payment is likely
But, it’s not all bad news.
There’s likely to be a one-off bonus for 2024.
That’s because agreement has been reached to sell its operations in Canada. Crucially, regulatory approval for the deal was granted on 21 December 2023.
The sale is expected to be concluded during the first quarter of 2024. And HSBC’s directors have promised to pay $0.21 per share as a special dividend, in the first half of the year.
This came as a pleasant surprise to me. That’s because the average expectation of the analysts was for a payout of $0.18.
If the bank does pay $0.84 (66.5p) for 2024, it implies a current yield of 10.5%.
What does this all mean?
Given this extraordinary yield, I’m not too disappointed that the analysts are forecasting the dividend to remain largely unchanged over the next couple of years.
The average for the FTSE 100 is 3.9%. Even without the bonus from the Canadian disposal, the stock’s paying over twice this level.
Of course, dividends are never guaranteed.
But HSBC is a global bank with a recognisable brand, solid reputation, and strong balance sheet. This should help it maintain its returns to shareholders at the levels expected by the analysts.
