In today’s challenging economic environment, investors have been rotating out of growth stocks and into value ones. What particularly attracts me to value stocks is their ability to generate a passive income for me. One sector I believe is primed to grow its dividend payouts in the years ahead is banking.

Dividend champion

FTSE 100 banking giant HSBC (LSE: HSBA) is one stock on my radar for generating passive income. Despite beating analysts’ profit expectations, the market didn’t warm to its third-quarter results. Yesterday, its share price fell 7%. Year-to-date, the share price has been flat.

In 2022, analysts are predicting a dividend per share (DPS) of 29 cents. At today’s share price, that equates to a yield of 5.8%. However, what really attracts me to HSBC shares, is the prospect of bumper returns in the years ahead.

For 2023, analysts are forecasting a 58% increase in DPS to 46 cents. This is on the back of materially higher expected returns. The company is also reinstating quarterly dividends.

Driving the improved performance of HSBC, is rising interest rates. In the last 18 months, net interest income (NII) has increased 30% to £8.5bn. Unsurprisingly, this has had a positive impact on the net interest margin (NIM).

Targeting £100 a month from HSBC shares

There are two methods I can employ in order to target £100 a month in dividend income from the shares.

Firstly, I could make a lump sum investment. Crunching the numbers, and assuming a forward yield of 9%, I would need to invest £13,300 to reach my target. At a price of around 443p per share, I would therefore need to buy 3,010 shares.

Secondly, and a better proposition for me, would be to build my position in the stock over time. I will make an initial investment of £1,000. Each month thereafter I will buy £100 of its stock. If I reinvest all my dividends too, in approximately seven years I would have reached my target of 3,010 shares.

Of course, these figures are purely illustrative. They assume that both the dividend yield and share price remain constant; a highly unlikely scenario.

Is HSBC’s dividend yield safe?

A key metric I look at when determining dividend sustainability, is dividend cover. This tells me how many times earnings are covered by DPS. In 2023 and 2024, analysts are predicting that earnings per share (EPS) will be 96p and 104p, respectively. Consequently, dividend cover is comfortably above the recommended two times.

However, the banking industry is a notoriously cyclical one and earnings estimates can change very quickly.

The macroeconomic environment has deteriorated during 2022. Rising inflation and stagnant growth have raised the spectre of the return of stagflation.  Little surprise, therefore, that HSBC has significantly increased its expected credit loss (ECL) provisions. Its large exposure to China’s commercial real estate sector is another particular concern.

Despite these risks, I believe that HSBC is well placed to ride out the economic storm and emerge stronger.

Over the last few years, it has been exiting low-growth markets and pivoting toward Asia. A growing, propensity to save, middle class, coupled with low investment product penetration, provides HSBC with incredible growth opportunities. As its share price languishes, I intend to build a position in the stock.

The post I’d buy 3,010 shares of this FTSE 100 stock for £100 in monthly passive income appeared first on The Twelfth Magpie.

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Andrew Mackie 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

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 @ £5.01
• Total value: £75,150.00

National Grid

National Grid disclosed its FY22 results this week. The energy company reported an underlying operating profit of £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 @ £12.29
• Total value: £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 @ £1.25
• Total value: £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 @ £1.25
• Total value: £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 it’s tax-efficient for both the employer and its employees.

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.

The post Director dealings: HSBC, National Grid, Taylor Wimpey appeared first on The Twelfth Magpie.

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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.

Long-term investment

One famous Buffett quote is: “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.” Using this logic, it is vital that potential investments have strong long-term prospects and are in healthy industries. An example I see in the FTSE 100 is the insurance company Legal & General (LSE: LGEN).

I particularly like LGEN as a long-term investment due its record of profit and dividend growth. Indeed, in the recent half-year trading update, profits had reached over £1bn. This is 7% higher than in 2019, demonstrating the company’s excellent recovery from the pandemic. Shareholder returns have also grown over the years, and this year’s dividend is expected to total around 18.5p per share. This is 5% higher than last year, and around 300% higher than a decade ago. This gives the insurance company a dividend yield of 7%, significantly higher than other FTSE 100 stocks.

I reckon that this strong performance can continue for the foreseeable future, which is why I’d happily own LGEN shares for 10 years. its growth should be fuelled by the ageing population, due to significant exposure to the annuities sector. Of course, there is still the risk of the competition taking market share, but as a current market leader, LGEN seems to me like a stock Warren Buffett would like.

A recovery FTSE 100 stock

HSBC (LSE: HSBA) had an extremely difficult 2020, and its share price reached lows not seen since the financial crisis in 2009. But there have been recent signs of recovery, and I feel that the share price now has upside potential. In fact, as Buffett said: “If a business does well, the stock eventually follows.” I feel this applies to HSBC.

In the recent half-year trading update, the bank managed to post profits before tax of $10.8bn. This was around 150% higher than last year, supported by a cancellation of $300m of provisions made for bad debts. Clearly, this was a very strong performance, yet I don’t believe that the HSBC share price has risen sufficiently since. The shares are currently priced at 412p, around 30% lower than their pre-pandemic price. But as the business seems to be performing well at the moment, I feel the share price may follow suit soon. This is why I’m tempted to add this stock to my portfolio.

I also like this FTSE 100 stock as a long-term investment, especially considering its recent “pivot to Asia”. This involves $6bn of new investment in the area, and the relocation of some executives from London to Hong Kong. Due to growth seen in Asia, I believe that this will have a positive effect on future profits.

There are still risks with this strategy though, especially due to the geopolitical tensions in Asia right now. This may limit the success of the transition.

The post 2 FTSE 100 stocks to buy using Warren Buffett’s advice appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in Legal & General Group. 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.

Recent financial results

The recent HSBC Q1 trading update was fairly positive, with profit after tax up 82% to $4.6bn from the year before. Such a strong performance was primarily because expected credit losses and impairment charges fell for the quarter. Indeed, the bank set aside just $400m for bad debt, compared to a $3bn charge the year before. This meant that profits were above analysts’ expectations.

The outlook for the bank is also looking more optimistic than it was at the start of the pandemic. For example, it expects mid-single-digit percentage growth in consumer lending for the year. Of course, this is dependent on how quickly countries can recover from the pandemic and the new variants may hinder the economic recovery. Even so, if the economy can bounce back as quickly as many expect, the HSBC share price is likely to respond positively.

Unfortunately, the outlook for HSBC is still uncertain though. As such, unlike many other banks, such as Barclays and Lloyds, HSBC has not yet restored its dividend. Although it will consider paying a dividend after its half-year results in August, this is not certain. Restoring a dividend is often a strong sign of confidence. So I am slightly concerned that HSBC decided not to pay one after its recent results.  

Recent strategic moves

Despite my worries about HSBC shares, I have been impressed with the group’s recent strategic moves. Initially this included exiting retail banking in the US, where the bank had long struggled to compete with the big US institutions. HSBC will retain only high-net-worth customers in the US in an attempt to simplify the business and maximise profits.

More recently, it also managed to sell its French retail banking network to the private equity group Cerberus. Although this deal will see HSBC book a pre-tax loss of around $2.3bn, and a $700m charge from reduction in goodwill, it makes sense to me as the French business had consistently underperformed. Indeed, it means that the bank will be able to focus more heavily on Asia, where it generates the majority of its profits. After these strategic changes, I feel HSBC shares are more tempting.

Am I buying HSBC shares?

But are they tempting enough for me to buy? No. Right now, I feel that other banks, in particular Lloyds and Barclays, are far more appealing investment opportunities than HSBC. Despite the promising simplification of its business, HSBC still has a long way to go. The geopolitical tensions in China may also hinder the bank’s plans. Furthermore, at around 425p, HSBC shares are no longer as discounted as they once were. Consequently, I feel that there are a number of better opportunities in the market.

The post Is it the perfect time for me to buy HSBC shares? appeared first on The Twelfth Magpie.

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• Up 250%! Here’s why I bought HSBC shares over SpaceX stock
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• Could a Stocks and Shares ISA eventually replace the State Pension?
• 2 bank shares I like better than Lloyds today
• How much do I need to invest in HSBC shares to target £5,986 a year in second income?

Stuart Blair owns shares in Barclays. The Motley Fool UK has recommended Barclays, 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.

This bank stock just keeps on falling

Since the start of the year, the HSBC share price has fallen 52%. This has been due to an abundance of bad news ranging from the pandemic to the souring of US-China relationships.

I would say that the largest worry for HSBC has to be the pandemic. With the expectation being that many people and businesses will default on their loans, HSBC has had to set aside between $8bn and $13bn to cover this. In August, the bank also reported a 65% drop in pre-tax profits. This was larger than analysts had previously expected, and the share price has continued to fall since.

Unfortunately for this bank stock, the future doesn’t look much brighter either. The base rate in the UK has remained at 0.1%, and there’s talk of negative interest rates being introduced at some point in the future. This would place further strain on HSBC profits. Political tension in Hong Kong also risks undermining its position in Asia, which accounts for 90% of business.

Finally, the recent news that HSBC has supposedly allowed criminals and fraudsters to move dirty money around the world is also a major worry. Although the bank has stated that it has “embarked on a multi-year journey to overhaul its ability to combat financial crime”, accusations such as these do carry significant reputational risk. The fallout could therefore lead to further drops after its 6% fall today.

All in all, I’m avoiding HSBC shares. Although they’re undeniably cheap, the bad news looks set to continue, and I can see further declines from this point on.

Is the Barclays share price any better?

Another bank stock involved in these accusations of allowing criminal activity is Barclays. It too has pleaded innocence, stating that it “complied with all our legal and regulatory obligations”. Even so, if further evidence is found over the next few weeks, the Barclays share price could drop even further.

Fortunately, Barclays’ saving grace is its investment bank. In fact, in the first half of the year, the investment bank was able to grow revenues by over 30%, and this helped to offset some of the losses. I’m therefore more optimistic for a recovery in the Barclays share price. Of course, with a potential second lockdown on the way, and the added worry of Brexit, this stock is a risk, but I think it’s a risk worth taking.

The post After these allegations, what would I do with bank stocks? appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in Barclays. The Motley Fool UK has recommended Barclays and 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.