The UK stock market’s enjoyed a healthy rally in recent weeks. But years of underperformance mean British stocks can still be a great way to make a passive income.
This is because the dividend yields on many top stocks remain at sky-high levels. Take Bank of Georgia Group (LSE:BGEO) and HSBC Holdings (LSE:HSBA), whose yields sail above the FTSE 100 average of 3.5%.
These two dividend shares also offer great value when it comes to earnings. Both their trailing dividend yields and price-to-earnings (P/E) ratios are shown in the table below.
Should you invest £1,000 in Bank of Georgia right now?
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| Company | Trailing dividend yield | Trailing P/E ratio |
|---|---|---|
| Bank of Georgia Group | 6.7% | 4.6 times |
| HSBC Holdings | 7% | 8 times |
If I invested £20,000 equally across these stocks, I could potentially earn £1,380 in passive income this year if their dividend yields remain the same. That’s based on their average yields of 6.9%.
And I believe they will steadily increase their dividends over time, providing an increasing second income.
Here’s why I think they’re worth serious consideration right now.
A dip-buying oppportunity
Bank of Georgia’s share price has slumped in recent weeks. This isn’t down to any operational problems that the bank’s currently enduring however.
In fact, the latest financial results from its competitor, TBC Bank, bode well for Bank of Georgia’s upcoming first-quarter trading statement on 29 May. TBC reported a 15.8% increase in pre-tax profit for the March quarter, driven by a 16.1% rise in operating income.
Instead, investors have taken fright due to rising civil disorder in Georgia caused by political developments. Any escalation has the potential to hit the country’s economic growth.
However, I believe Bank of Georgia’s 25% share price drop this month now reflects this risk. The company’s trailing P/E ratio’s currently even further below its rock-bottom five-year average of 5.6 times.
As things stand, the bank still has enormous investment potential. Georgia’s economy is poised for further strong growth (Fitch analysts expect this to average 5.2% in 2024-2025). So financial product demand looks likely to continue soaring from current low levels.
A FTSE 100 bargain
HSBC should also benefit from surging personal wealth levels (and population growth) in its own developing markets.
For the four years to 2028, Statista analysts predict Asia’s banking industry will expand a healthy 6.54%. And HSBC has considerable brand power it can leverage to capitalise on this opportunity.
So why are its shares so cheap? The threat of continued economic turbulence in China is spooking investors, and in particular enduring stress in the country’s property sector.
But like Bank of Georgia, HSBC’s low P/E ratio factors in these troubles, in my view. At 8 times, it’s some distance below the bank’s five-year average of 12.7 times.
As a potential investor, I’m especially attracted by the Footsie bank’s cash-rich balance sheet. Its CET1 capital ratio in fact continues to rise and stood at a sector-leading 15.2% as of March.
This is well ahead of its target of 14-14.5%. Not only is this supporting the company’s growth plans in the region, HSBC’s strong financial base also means it should continue to pay market-beating dividends.
