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2 income stocks I’d buy today!

Charlie Keough — Thu, 14 Jul 2022 09:45:58 +0000

Income stocks are a great way to protect my portfolio against rising inflation. With it currently sitting at over 9% in the UK for May, the situation across the pond isn’t faring much better. Yesterday the US saw rates spike to a 40-year high.

With rising inflation meaning volatility is running rife, I’m on the lookout for stocks with healthy dividend yields to put my money to work. Here are two I’ve got my eye on.

Lloyds

My first pick is FTSE 100 constituent Lloyds (LSE: LLOY).

The stock’s current dividend yield is an attractive 4.77%, which sits firmly above the FTSE 100 average. This isn’t inflation-beating, but it’s most certainly more rewarding than keeping my cash in the bank.

There are other reasons to pick Lloyds too. I like the bank’s low valuation. With a price-to-earnings (P/E) ratio of 5.6, this falls well within the ‘value’ benchmark of 10. And compared to its peers, Lloyds also looks cheap. For example, HSBC currently trades on a P/E of 11.

Hiking interest rates could see the firm suffer if its customers default on their loans. Yet on the other hand, higher rates will also allow Lloyds to charge borrowers more when lending. Interest rates were recently set at 1.25%. And with another review scheduled for August, there have been hints of a 0.5% hike. It could benefit from this.

Lloyds is also the UK’s largest mortgage lender. With loans for properties accounting for over two-thirds of its lending, the business may see a slowdown in growth for the foreseeable future as the booming housing market hits the brakes. However, I still think it would be a strong addition to my portfolio.

Rio Tinto

I also like the look of Rio Tinto (LSE: RIO). With an impressive dividend yield of 12.1%, this trumps that of Lloyds. It also beats the UK inflation rate, offsetting the possibility of my cash eroding.

It’s the second-largest mining company in the world, and it currently trades for around £47 per share.

Just like Lloyds, the stock looks cheap. It has a 4.4 P/E, considerably lesser than that of competitor Glencore (13.3).

On top of this, it also had £1.6bn of net cash, according to its 2021 full-year report, so the firm is in a healthy financial position to pay dividends.

It will also benefit from the large investments we’re set to see in the renewable energy sector. Electric vehicles and their charging infrastructure, along with renewable energy power plants, will see a rise in the long-term demand for iron. The business has also been increasing its stake in mining lithium – including the recent purchase of Rincon lithium project.

It does, however, faces headwinds, as ongoing Covid concerns continue to plague China. Demand for iron ore may wane in the months ahead. China accounts for around half of global steel output, and iron ore is a key material, meaning Rio Tinto may suffer.

However, with its low valuation and strong long-term outlook, I’d buy the stock today.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

HSBC shares are up 20%. Here’s what I’m doing now

Harvey Jones — Wed, 22 Jun 2022 10:08:11 +0000

HSBC (LSE: HSBA) shares have been bombing along this year, despite growing fears of a stock market crash. It’s been a similar story across the FTSE 100. While the US S&P 500 is 21.51% down year-to-date, the UK lead index has dipped just 4.7%. HSBC has done a lot better than that.

The Asia-focused banks started 2022 trading at 445p, but now stand at 538p, an increase of more than 20%. Measured over a year, they are up 26%, although some could argue they are only playing catch-up after a tricky spell. They still trade a fifth lower than five years ago.

HSBC shares shrug off China fears

Investors have clearly shrugged off concerns that HSBC now comes with major geopolitical risk, due to its operations in China. As the Chinese authorities crack down on dissent in Hong Kong and menace Taiwan, the bank finds itself stuck between a rock and a hard place. It wants to stay sweet with Beijing, without upsetting the US.

It’s a tough balancing act, but one HSBC has managed to pull off so far. However, as we have seen in the Ukraine, things can come to a head very quickly, and cause huge damage.

Another worry is that Chinese growth is slowing, as the country remains wary about lifting Covid lockdowns, while the West is now open.

Interest rates are now rising at a faster pace than anybody could have imagined a year ago, and this is a double-edged sword for the big banks. It allows them to increase their net interest margins, the difference between what they pay savers and charge borrowers. Yet higher borrowing costs could also lead to a surge in loan impairments from cash-strapped business and personal customers.

I’d check out rival FTSE 100 banks first

HSBC shares have outperformed rival FTSE 100 banks in 2022. Barclays is down 14.44% year-to-date, while Lloyds Banking Group has fallen 12.82%. Yet I’m not sure this outperformance is going to last.

HSBC’s Q1 profits fell 28%, hit by the war in Ukraine, the Chinese slowdown, and a warning on its share buyback outlook. I’m surprised the share price didn’t take a bigger hit, but investors chose to focus on the good news instead. Pre-tax profits of $4.2 billion beat the $3.7bn markets had expected. Chinese insurer Ping An’s proposal to break-up the bank may have also driven continued investor interest.

Given the wider political risks, and Covid concerns, I am wary of HSBC. Something else is holding me back too. Recent share price success has left it trading at 10.66 times earnings.

That makes it look relatively expensive compared to Barclays (4.28x earnings) and Lloyds (5.79x). These two FTSE 100 banks also offer slightly more generous yields. I would happily hold HSBC shares in my portfolio, but I won’t rush to buy them today. Personally, I’m checking out Barclays and Lloyds first.

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Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Director dealings: HSBC, National Grid, Taylor Wimpey

John Choong — Fri, 20 May 2022 13:34:47 +0000

Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as company news due to their complex nature. Nonetheless, here I’m breaking down this week’s director dealings for three of the FTSE 100‘s top firms.

HSBC

The HSBC share price has had a volatile time so far this year. The stock jumped nearly as high as 25% only to drop back down to a 5% gain this year. This has been mainly down to speculation of the bank having to break up its Asian and western operations. Amid all of the volatility however, it still didn’t stop a director from acquiring shares this week.

Dame Carolyn Fairbairn (The former CBI Director General) purchased a large number of HSBC shares on Wednesday.

Name: Dame Carolyn Fairbairn (Non-executive Director)
Nature of transaction: Acquisition of shares
Date of transaction: 18 May 2022
Amount purchased: 15,000 @ Â£5.01
Total value: Â£75,150.00

National Grid

National Grid disclosed its FY22 results this week. The energy company reported an underlying operating profit of Â£4.0bn, which is 11% higher year on year. The firm also announced a final dividend of 33.76p, bringing the total dividend to 50.97p. This is a 3.7% increase in its yield. As a result, the National Grid share price is now up by more than 10% this year, sparking interest by a director in buying shares.

There’s still plenty of worry in the air. Talk of a possible windfall tax on energy companies has hindered the stock’s trajectory upwards. Nonetheless, a non-executive director still saw this is an opportunity to buy National Grid shares on Thursday.

Name: Victoria Wood (CAP of Tony Wood, Non-executive Director)
Nature of transaction: Acquisition of shares
Date of transaction: 19 May 2022
Amount purchased: 2,000 @ Â£12.29
Total value: Â£24,586.60

Taylor Wimpey

Housebuilding giant Taylor Wimpey had a relatively decent week. Its shares managed to outperform the wider FTSE 100 index as it gained over 2%. Its stock is still down by more than 25% this year, but a number of director dealings are still happening inside the company, suggesting confidence that it has a bright future in the long term.

Although higher mortgage rates are expected to cool the housing market, Taylor Wimpey said: “Demand for our homes remains strong, with the business well positioned to deliver further progress in 2022 and beyond” in its most recent trading update. As such, a number of directors added more shares to their portfolio.

Name: Jennie Daly (CEO)
Nature of transaction: DRIP shares
Date of transaction: 13 May 2022 (Reported 17 May 2022)
Amount purchased: 5,815 @ Â£1.25
Total value: Â£7,260.42

Name: Chris Carney (Group Finance Director)
Nature of transaction: DRIP shares
Date of transaction: 13 May 2022 (Reported 17 May 2022)
Amount purchased: 6,513 @ Â£1.25
Total value: Â£8,131.92

To provide context, DRIP shares are usually part of a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to award equity to employees flexibly. Publicly listed companies normally exercise this option because itâs tax-efficient for both the employer and its employees.

Types of shares within a SIP (Source: BDO.co.uk)

There are many types of shares in an SIP. But in this instance, the CEO and Group Finance Director used the dividends they received on SIP shares to reinvest into further Taylor Wimpey shares. It should be noted though, that dividend shares must normally be held in the trust for at least three years to get full tax relief.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The HSBC share price faces a major threat. Here’s what I’d do now

Harvey Jones — Mon, 25 Jan 2021 11:35:32 +0000

The HSBC Holdings (LSE: HSBA) share price has been recovering nicely, rising by a third in the last three months. It still has a long way to go to recover its losses from last year’s stock market crash, though. Measured over one year, it is down 30%.

Some investors might see this as an opportunity to buy another top FTSE 100 stock at a bargain price. The index is full of opportunities like this. I think pharmaceutical giant GlaxoSmithKline is one of them, but I’m worried that the HSBC share price could come under pressure in the months ahead, for political reasons.

The pandemic has been hard on the banking sector. The big banks have been hit by slowing economies, which hit activity and increase bad debts. Today’s near-zero interest rates have destroyed net lending margins. Lockdowns are dragging on, and on. The HSBC share price isn’t the only one falling.

FTSE 100 banks are a recovery play

Fellow FTSE 100 banks Barclays and Lloyds Banking Group are also well down on this time last year. However, the HSBC share price faces a particular headwind, whatever happens to Covid-19.

Corporate responsibility is a bigger issue than ever. Investors increasingly expect companies to have rigorous environmental, social and governance (ESG policies). What has largely been talk in the past, is now turning into action. This is a massive headache for HSBC and could threaten its share price, given the bank’s exposure to Hong Kong and China.

Last week, outgoing US secretary of state Mike Pompeo strongly criticised China over treatment of Uighur Muslims in Xinjiang. While President Joe Biden will reject much of the Trump administration’s legacy, he’s likely to agree on this point.

The HSBC share price is vulnerable

This ups the pressure on chief executive Noel Quinn, who tomorrow gives evidence to the Commons foreign affairs committee on the Hong Kong security law. He will be questioned on the bank’s decision to freeze the bank accounts of pro-democracy activists, including politician Ted Hui.

Quinn has previously countered criticisms by saying his bank has to comply with local laws wherever it operates. That may no longer be enough as Beijing takes a hard line and locks up activists. HSBC is walking a tightrope between its London listing and Chinese operations. Today, the HSBC share price trades at 18.58 times earnings. That suggests to me that the risk has not been priced in.

Last year, the Boohoo Group share price was hammered by allegations of worker exploitation in its supply chain. It has recovered as the company has cleaned up its act, but HSBC is in a much tougher position and there’s no easy solution. It’s caught between a very big rock in the US and a very hard place in China. The HSBC share price risks getting squeezed between the two.

That’s my opinion as it relates to my own portfolio, of course and I may be overdoing my concerns. There are still good reasons to hold HSBC, as it may reinstate its dividend once regulators allow. President Biden may take a less confrontational stance towards China than his predecessor. This is also the fourth biggest stock on the FTSE 100, and offers me exposure to faster growing parts of the world. For now, I’ll watch how the China issue plays out.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

HSBC’s share price has crashed. Here’s my view on the stock now

Edward Sheldon, CFA — Wed, 23 Sep 2020 06:22:06 +0000

When I last covered HSBC (LSE: HSBA) shares at the start of the month, I said the best move for investors was to leave the stock alone. I noted the company faces plenty of challenges at present and said there were much better stocks to buy.

In hindsight, that now looks like a good call. Since my article, HSBC’s share price has fallen from 317p to 287p – a decline of about 10% in less than a month. Here, I’ll explain why HSBC’s shares have fallen recently. I’ll also provide my view on the FTSE 100 bank stock now.

Why has HSBC’s share price fallen?

The main reason HSBC’s share price has fallen recently is that reports have emerged the bank allowed criminals to transfer millions of dollars around the world in 2013 and 2014.

A leak of secret documents – reportedly made up of over 2,100 suspicious activity reports (SARs), filed by financial institutions with the US Treasury’s Financial Crimes Enforcement Network (FinCEN) – show that HSBC moved vast sums of criminal money for a Ponzi scheme, even after it had learned of the scam.

A number of other major banks, including JP Morgan, Deutsche Bank, Standard Chartered, and Bank of New York Mellon, also appear in the leaked documents which are being called the ‘FinCEN files.’

It’s worth pointing out HSBC, in a statement to Reuters this week, said this information is “historical.” It also told Reuters that, as of 2012, it embarked on a “multi-year journey to overhaul its ability to combat financial crime.”

However, it’s fair to say these allegations don’t look good for HSBC. As my colleague Stuart Blair pointed out on Monday, accusations such as these carry “significant reputational risk.” The fallout could have a negative impact on revenues and earnings going forward.

My view on the stock now

In my opinion, these money laundering allegations just add more risk to the investment case for HSBC. When I covered HSBC shares earlier in the month, I discussed five key issues that concern me in relation to the bank. These were:

The geopolitical risk related to the US-China face-off
The negative impact on profits from Covid-19-related bad debts
Low interest rates and their potential impact on profitability
Competition from innovative financial technology (FinTech) firms and digital banks, such as Monzo
The suspended dividend and the reviewing of the dividend policy

All of these issues still concern me. The FinCEN money laundering news and potential reputational damage is just another issue to add to the list.

All things considered, my view on HSBC shares remains the same. I think this is a stock that’s best left alone right now. HSBC’s share price could rebound at some stage. After all, it’s currently at levels last seen in the Global Financial Crisis.

In my opinion, there are much better stocks to buy at present.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Standard Chartered. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Warren Buffett wouldn’t touch these 3 dirt-cheap FTSE 100 stocks, nor would I

Harvey Jones — Sat, 22 Aug 2020 13:57:44 +0000

Has the time come to give up on the big UK banks, which are some of the worst performing FTSE 100 stocks of the last 15 years? I’m beginning to think it is.

I like to buy bombed-out FTSE 100 stocks as much as the next contrarian, but I have to draw the line at these serial flops. Every time I reckoned Barclays (LSE: BARC), HSBC Holdings (LSE: HSBA) and Lloyds Banking Group (LSE: LLOY) were about to bounce back, they let me down again.

All three have been hit hard by the pandemic, and have struggled to recover. Measured over six months, Barclays and HSBC are both down around 40%, and Barclays is down 50%. They can’t blame all their misfortunes on Covid-19 either.

I’d beware of these FTSE 100 stocks

I’ve been wondering what the world’s greatest investor Warren Buffett would make of the UK banks right now. He isn’t averse to holding banking stocks, provided they are based in the US. Wells Fargo, US Bancorp and Bank of New York Mellon number among the top 10 holdings of his investment vehicle Berkshire Hathaway. He has spent recent months hoovering up shares in Bank of America.

However, I reckon Warren Buffett would struggle to justify buying a stake in FTSE 100 stocks Barclays, Lloyds or HSBC, even though all three FTSE 100 stocks are dirt-cheap right now.

Barclays has a price-to-book value of just 0.3, where 1 is usually seen as fair value. Lloyds stands at 0.4, and HSBC at 0.5. These are fat discounts. So why do I think Buffett would steer clear? His old saying applies here: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”. The prices look wonderful, but the companies don’t. I wouldn’t even describe them as fair.

Lloyds is directly exposed to the fortunes of the UK, whose economy has fallen fastest among the major economies, and has Brexit to deal with as well. HSBC faces an even bigger challenge, as it is caught in the middle of the US-China face-off. I would tread carefully with both. Of the three FTSE 100 stocks, it may just be possible to make a positive case for Barclays, whose investment bank has been going strong.

Warren Buffett would be wary

At least these FTSE 100 stocks have a healthy capital position, thanks to provisions made after the financial crisis. So that’s something.

I have another worry about buying UK banks. Their balance sheets are so sprawling, you don’t know what you are getting. As Warren Buffett said: “Never invest in a business you cannot understand.” Most private investors have little hope of understanding what they get when buying Barclays, HSBC and Lloyds. They are effectively crossing their fingers.

All three big FTSE 100 stocks trade much lower than a decade ago. That reminds me of another famous Warren Buffett saying: “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1”.

Investors have been losing money on Barclays, HSBC and Lloyds for around 15 years. That dismal run will take some turning around.

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The HSBC share price is soaring today. Yet I wouldn’t buy this stock, or Standard Chartered

Harvey Jones — Mon, 06 Jul 2020 11:13:22 +0000

The HSBC share price has been punished by a combination of the coronavirus and the China clampdown on Hong Kong. Its stock has fallen by half in the last three years.

However, the HSBC Holdings (LSE: HSBA) share price is in recovery mode today, up around 6%, in a welcome moment of respite for investors. Another Asia-focused bank listed on the FTSE 100, Standard Chartered (LSE: STAN), is up by a similar amount.

Despite this, a long shadow now hangs over their futures. As the Hong Kong clampdown intensifies and Western politicians openly worry about the rising threat from China, HSBC and Standard Chartered are walking a political tightrope. They have to strike a balance between a democratic West and authoritarian China. There are no easy solutions.

New Hong Kong security laws hand sweeping powers to the communist regime in Beijing, and leave bankers operating in the territory open to prosecution. That must concentrate minds. And it looks like both banks have sided with China, backing the new laws to bring stability. Not a good look. Clearly, scarcely-veiled China threats are scarier than Western reputational damage.

I’d think twice about the HSBC share price

Both banks are also following the money. HSBC generates half its profits from China, and most of its growth. Standard Chartered earns around 90% its profits from Asia, Africa and the Middle East.

UK foreign secretary Dominic Raab and US secretary of state Mike Pompeo have both condemned the banks, and life could still get more uncomfortable. The US Congress has unanimously approved legislation that would punish lenders for doing business with Chinese officials involved in implementing the new security law.

Talk about being stuck between a rock and a hard place. If you’re looking to invest in the HSBC or Standard Chartered share prices, you can’t ignore these political threats. They could weigh on growth for years.

This makes domestic Covid-19 threats look like small beer. In fact, the pandemic has brought some positives. Reports suggest UK banks have netted billions in deal fees this year, as crisis-stricken companies look to generate cash to bolster their balance sheets.

Customer impairments are a growing concern though, as the UK plunges into recession, with bad debts on mortgages, credit cards and overdrafts set to rise.

Better FTSE opportunities out there

If you buy HSBC or Standard Chartered, you won’t get any dividends for now. Both have cancelled payouts after pressure from the Bank of England. They won’t be issuing any shareholder buybacks this year either.

It isn’t a good time to be a banker and, frankly, it’s not a great time to be a banking investor either. Standard Chartered mirrors the underperforming HSBC share price. It’s down almost half over three years.

The HSBC share price isn’t even cheap by conventional metrics, trading at just over 15 times earnings. Standard Chartered’s valuation is half that, around 7.5 times earnings. Regardless of price, both carry too much political risk for me.

I’d consider these instead…

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Standard Chartered. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’d buy the HSBC share price ahead of the stock market recovery

Harvey Jones — Tue, 28 Apr 2020 13:35:31 +0000

The HSBC share price has fallen by a third since Covid-19 struck, pushing it into bargain territory. However, anybody who’s keen to buy it before the stock market recovery also has to accept that its generous dividend has gone, for now.

Today, HSBC Holdings (LSE: HSBA) reported a thumping 48% drop in first-quarter pre-tax profit to $3.2bn, after setting aside $3bn to cover bad debts due to Covid-19. The HSBC share price has taken it on the chin though, and is broadly flat today. Frankly, investors feared worse.

Despite today’s headline numbers, I think the long-term investment case for the Asia-focused FTSE 100 bank is still promising.

The HSBC share price still tempts

The coronavirus has inevitably hit the top line, with reported revenue down 5%, amid lower customer activity. Investors have been warned to expect “materially lower profitability in 2020, relative to 2019.” Management is fighting back by postponing restructuring plans, and 2020 costs will now be lower than previously indicated.

HSBC has taken an early hit from the coronavirus, given its outsize Asian exposure. Today could have been a lot worse though. The HSBC share price could recover faster than domestic-focused UK banks, if Asia avoids a second wave of infections. Lending actually increased $41bn and deposits grew by $47bn, on a constant currency basis.

Regulators have forced the banks to rebuild their capital bases since the financial crisis, and this is working in HSBC’s favour today. Stock market volatility may help its investment bank, as traders look to take advantage.

The big worry is that the crisis will drag on and bad debts increase. HSBC expects impairments of between $7bn and $11bn this year. Higher, and the HSBC share price will suffer.

HSBC could lead the stock market recovery

The Prudential Regulatory Authority forced the banks to scrap dividends and focus efforts on saving businesses and private customers. That’s a shame, as the stock was yielding around 6%. Today, HSBC said it would review its dividend policy around the time of its year-end results for 2020.

The ultimate decision could be out of its hands, as regulators may determine what’s allowed. This may extend to share buybacks as well. Once the dividend is restored though, the HSBC share price will get a lift.

The global collapse in interest rates will hit net lending margins, but I suspect rates may recover faster this time. With trillions of stimulus set to hit the global economy, we might even see inflation, which would take us into a different world.

Ultimately, how fast the HSBC share price recovers depends on that pesky virus. If the world gets back to work in swift order, it’ll look a great buy at today’s price. A second or third wave could wreak havoc though.

I would buy HSBC today, based on the optimistic case. Covid-19 pessimists will disagree.

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Have £1k to invest? I think the HSBC share price could crush the FTSE 100 this year

Harvey Jones — Mon, 27 Jan 2020 13:05:08 +0000

If you’ve £1,000 to invest, or any other lump sum, there’s a huge choice out there. Right now, the FTSE 100 index is packed full of bargain stocks, many of them trading on dirt-cheap valuations, while offering generous yields.

HSBC looks cheap right now

You only have to look at global banking giant HSBC Holdings (LSE: HSBA) to see what I mean. This mighty operation, which has a market-cap totalling almost £114bn, currently trades at just 10.9 times forward earnings, well below the FTSE 100 average of just over 18 times earnings. HSBC is trading at a large discount to its blue-chip peers right now. So why is that?

One reason is HSBC generates a huge chunk of its earnings from China and Hong Kong, and has been caught in the political crossfire during recent democracy protests. These have been going on for months. HSBC has seen its buildings daubed with red paint and been hit by other forms of vandalism after being accused of working with Chinese authorities to cut off funding for protesters.

In situations like these, companies have to tread a thin line, with the risk of political threats on one side, and reputational damage on the other. As if that wasn’t enough, the bank has also been caught on the frontline of the US-China trade war. The HSBC share price has reflected this concern, falling 13% in the last six months.

Less exposure to Brexit

HSBC, like all the UK-listed banks, was also caught up in last year’s Brexit uncertainty, although that now seems to be easing. Brexit is less of a concern for HSBC than FTSE 100 rival Lloyds Banking Group, which has far more exposure to the UK, and far less overseas diversification.

Multinationals like HSBC will always face geopolitical problems, but current concerns could actually be a great opportunity to buy this stock, provided you intend to hold on for the longer run. One benefit, as I mentioned, is the bargain entry price. Another is that you also get a whopping dividend income, with the stock forecast to yield an income worth 6.8% a year in the months ahead.

To put that into perspective, the FTSE 100 as a whole currently yields just 4.34%. At this rate, if you reinvest your HSBC dividends back into your stock, you will double your money in less than 11 years, even if the share price doesn’t rise at all in that time. I suspect it will though.

Growth and income over the longer run

This is a business with strong operating margins of 38.5%. Earnings are forecast to dip 1% this year, but rise 11% in 2021.

My reasons for recommending HSBC now are twofold. First, I think the share price is due some kind of snapback. It may take two or three years, but it’s worth positioning yourself ahead of that. Second, you get a juicy income while you wait.

How long should you hold HSBC’s stock? Forever sounds about right.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

No savings at 50? I’d buy these 2 FTSE 100 income stocks over a buy-to-let

Harvey Jones — Fri, 13 Dec 2019 08:02:17 +0000

Investing in a buy-to-let property used to be a great way of generating extra income in retirement, but it’s not so tempting now.

Higher rate mortgage tax relief is being phased out, while investors must also pay a 3% stamp duty surcharge on purchases. As if that wasn’t enough, landlord ‘wear and tear’ allowances have been cut back as well.

Personally, I’d rather invest in FTSE 100 stocks, which also give you a winning combination of capital growth and income, but with a lot less bother. Also, if you buy inside your Stocks and Shares ISA allowance, you will not have to pay a penny of tax on your gains. Here are two to consider.

HSBC Holdings

One stock I would consider is global bank HSBC Holdings (LSE: HSBA). This is the third-largest company in the UK, after Royal Dutch Shell and Unilever, with a market cap of a massive £116bn. The group generates more than 90% of its earnings from China and Hong Kong, which exposes you to the greater growth potential of fast-growing emerging markets, but with the superior corporate governance you get from a London listing.

The bank isn’t without its risks, though, so make sure you understand those. For example, the HSBC share price has fallen around 12% over the last year, as the Chinese economy has been hit by US trade wars, while the political turmoil in Hong Kong hasn’t helped.

However, recent underperformance has made today’s entry price look tempting, as it now trades at just 10.4 times forward earnings, far cheaper than the average ratio for the index of around 17 times earning. Its price-to-book ratio is 0.8, comfortably below the 1.0 usually seen as representing fair value.

HSBC is now restructuring in a bid to increase its return on capital, and the cost-cutting operation should further drive shareholder value. This is a terrific income stock, with a forecast yield of 7%, far higher than you will earn in rent on most buy-to-let properties. Hong Kong remains a worry, so take a view on that risk before you buy.

Legal & General Group

I have regularly tipped FTSE 100-listed insurer and asset manager Legal & General Group (LSE: LGEN), and now appears to be justifying my faith in it. The L&G share price is up almost 25% this year, but still trades at a dirt-cheap valuation of just 8.8 times forward earnings.

The £16bn group offers a wide range of financial services, including investment management, lifetime mortgages, pensions, annuities, life assurance, and general insurance, and will benefit from the trend for people to make more provision for their future.

It is a major asset manager with more than £1trn of assets, and a UK leader in bulk annuities and life insurance. Over the last 10 years, it has delivered a total shareholder return of 404%, with dividends invested, outstripping the FTSE Life index at 182%.

Legal & General has delivered regular dividend growth in recent years and now offers a secure yield of 6.2%, healthily covered 1.9 times by earnings. Again, that’s more than you will get on many buy-to-let properties, and with a lot less tax and trouble.

The post No savings at 50? I’d buy these 2 FTSE 100 income stocks over a buy-to-let appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.