When it comes to dividend stocks, HSBC (LSE: HSBA) is the talk of the town at the moment. It was recently revealed that the bank is projected to pay £10.7bn in dividends in 2026 – more than any other FTSE 100 firm. The Footsie’s largest company has naturally grabbed a lot of attention around whether this could be one of the ‘must own’ dividend stocks for a Stocks and Shares ISA.
Let’s not forget that HSBC is very exposed to growing economies around the world, especially that of China, which could mean dividend increases for years to come. The big question then – what kind of percentage return could investors have to look forward to?
Big dividends
In the short term, the answer is easy to calculate. The forward dividend yield stands at 4.06% – a decent total above the FTSE 100 average. While it’s not guaranteed, that’s the amount forecasters are expecting.
How about the longer term? Much depends on the growth rate of the dividend. Taking the current 10-year growth rate of 3.93% – and assuming that all dividends are reinvested in more shares – the yield on the original stake would be 5.61% after five years and 8.73% after 10 years.
Only time will tell whether those numbers are close to the mark. And indeed whether HSBC could be the FTSE 100’s best dividend too. But I’ll point out that this calculation ignores share price increases, which could make a big difference too.
Of course, dividend payments are simply the consequence of what we really want when buying a stock – thriving company operations. So can HSBC deliver in the future?
Is it a buy?
One of the brighter aspects of the HSBC bull case is its focus in Asia and China. As you might expect from the Hongkong and Shanghai Banking Corporation, a significant amount of business is done in this corner of the world – around 50% of all revenues.
The advantage to this is the growing nature of emerging economies. China, the 800-pound gorilla of the continent, is still growing GDP at around 5% a year. That’s a good place to be for banks that flourish in booming economies.
But a downside is the possible issues with such countries. In China’s case, the lack of regulatory oversight is one thing to be aware of. There are also doubts from some quarters that figures (such as the aforementioned GDP growth rate) might be less accurate than those of other countries.
Personally? I think all banking stocks are intriguing propositions after years in the doldrums following the 2008 crash. With HSBC offering one of the most unique propositions on the FTSE 100, I think it’s worth considering. Those excellent dividends may continue long into the future too.
Should you invest £5,000 in HSBC Holdings right now?
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John Fieldsend has no position in any of the shares mentioned.
