The dividend yield for the UK’s largest bank, HSBC (LSE: HSBA), recently enjoyed a decent boost thanks to its final dividend.
In it’s FY24 results it announced a fourth-quarter dividend of 36c a share, which brings the total up to 66c a share. And when adding the 21p special dividend it ramps the full amount up to 87c — equivalent to 9.28% of the current share price.
However, since it has already gone ‘ex-dividend’, that’s only applicable to existing shareholders. For investors considering the stock this year, it’s important to look ahead at the dividend forecast.
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Let’s see what the analysis is for HSBC going forward and how its future dividends may unfold.
A sobering outlook
So far, HSBC has demonstrated a relatively strong commitment to delivering returns to shareholders through dividends and buybacks. This year’s final amount equates to a 30% increase on last year, continuing a trend of notable dividend growth since Covid.
Yet its dividend history is sketchy, with several large cuts spoiling an otherwise impressive track record. Naturally, as a bank, it’s highly sensitive to economic downturns, so 2008 and 2020 saw the biggest cuts. With US trade tariffs threatening further economic turmoil, there’s a significant risk of another cut in the near future.
Last year’s special dividend came as the result of the sale of the bank’s Canadian business. As such, it’s unlikely to be repeated. The forecast for 2025 envisions a final dividend of 66p per share, rising to 71p in 2026 and 77p in 2027.
The payout ratio is expected to find a stable footing in the range of 50% for all three years. If those figures unfold, it could make for a decent and reliable income stock. Unfortunately, the current uncertainty infecting all global markets makes any forecasts hard to trust.
Share price action
The share price has already taken a 17% hit since the Trump Administration announced 10% trade tariffs on the UK. It’s exposure to the US is notable so this rout may extend further. Still, HSBC is no small player in global markets meaning its strong foundations make it a strong contender for a rebound.
Management remains optimistic about sustaining strong dividends despite global economic uncertainties. Chairman Mark Tucker emphasised the bank’s solid position to continue rewarding shareholders, citing a $19bn return through dividends and buybacks in 2023 and the additional $8.8bn announced in 2024.
The bank aims for a mid-teens return on average tangible equity (RoTE) from 2025 to 2027, acknowledging the volatile and uncertain outlook for interest rates.
Analyst forecasts
Analyst ratings are fairly mixed, with nine out of 21 sticking to a Hold, while six say it’s a Strong Buy. Although the majority are positive, two analysts feel it’s a Strong Sell.
The average 12-month price target of 962p is 30% higher than today’s price. Considering annualised growth over the past five years has only been 11.36% a year, that may be somewhat optimistic.
When combined with dividends, that average would still amount to an annual return of almost 20%.
HSBC has long been a solid earner for me and I don’t see that changing. As such, I think it’s a stock well worth considering for both new and seasoned investors.
