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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.

GlaxoSmithKline isn’t the only FTSE 100 stock I’ll be watching in February

Paul Summers — Mon, 24 Jan 2022 08:26:09 +0000

The FTSE 100 pharmaceutical giant GlaxoSmithKline‘s (LSE: GSK) share price had a very decent 2021, rising almost 20% and easily outpacing the the lead index. It’s had a pretty good start to 2022 too, albeit as a result of Unilever‘s interest in acquiring its consumer healthcare business rather than any news on trading. That’s all set to change when GSK provides the market with Q4 numbers on 9 February.

For me, this definitely makes the company one to watch. It’s not the only top-tier stock I see myself checking in on either.

Bid target

Unilever has ruled out another bid for GSK’s brands. Whether this is actually true, it’s certainly got the market talking about these sleepy giants once again. There’s little doubt the CEOs of both companies, but particularly GSK’s Emma Walmsley, are under pressure to deliver for their owners.

I suspect Walmsley might be willing to do a deal… eventually. I also believe that most shareholders would support this if GSK’s leader promised to return the vast majority of what it receives from the sale back to them. Of course, she may have other ideas.

If Unilever stays quiet over the next few weeks, GSK’s short-term performance will likely depend on whether it’s been able to build on the rebound in sales of non-Covid-19 vaccines seen in Q3. There’s a chance this won’t be the case. The world has been grappling with the Omicron variant over the last few months, after all.

Overall however, I think there are more reasons to be bullish than bearish right now. GlaxoSmithKline’s shares aren’t overpriced at 14 times forecast earnings and come with an expected 53.8p per share total dividend. Yes, the latter is a step down from the 80p holders that have grown accustomed to. However, it still equates to a 3.3% yield. That’s almost identical to that offered by the index as a whole.

Another FTSE 100 stock I’ll be watching

After some early promise, the Barclays (LSE: BARC) share price looks like ending January near where it started. I’m actually a little surprised by this. The possibility of quicker-than-expected interest rate rises should be good news for the financial juggernaut and its peers.

Still, it’s hard to complain if you’re a Barclays shareholder. Despite the resignation of CEO Jeff Staley in November, the shares are 45% up on where they stood this time last year. For perspective, that’s a smaller gain than that achieved by Lloyds (53%) but higher than over at HSBC (27%).

Despite this stellar performance, Barclays shares still trade on a little less than 8 times earnings. That might be deemed cheap given its more diversified business model compared to other banks. A 4.1% yield should also be attractive to income hunters.

I don’t see 2021’s gains being replicated in 2022. Nevertheless, I do think this could prove a decent entry point if final results on 23 February are as good as I expect them to be. Revenue from Barclay’s investment banking arm was already showing great momentum when the company last reported to the market in October.Â

Of course, the aforementioned division could become something of a liability if market conditions were to suddenly worsen. So if I was to buy Barclays shares today, I would make a point of also being invested in stocks in more defensive sectors. Oddly enough, GlaxoSmithKline might be an ideal candidate!

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, GlaxoSmithKline, HSBC Holdings, Lloyds Banking Group, and Unilever. 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.

Can the HSBC share price continue to rise?

Charlie Keough — Thu, 12 Aug 2021 09:54:21 +0000

Trading at over 600p two years ago, the HSBC (LSE: HSBA) share price is currently around 410p. Already falling pre-pandemic, 2020 saw a 35% plunge for the stock. Yet after posting solid half-year results, and up 8% year-to-date, will we continue to see a rise? Let’s take a look.

Bull case

After struggling through the pandemic, the latest set of results released by HSBC provided some form of optimism. For half-year 2021, compared to the same period in 2020, pre-tax profit increased by $6.5bn to $10.8bn. The bank was also keen to highlight how all regions were profitable in the period. Pre-tax profit for Q2 was also up by $4bn. This shows a strong comeback from the pandemic and this momentum should carry through the rest of the year. I think now is a great time to buy before we potentially see a rise in the HSBC share price.

To add to this, HSBC also announced the reinstatement of dividends (7 cents a share) for shareholders. This is part of a larger initiative as it targets a dividend payout ratio of 40%-55% for 2021.

The bank has also been eager to strengthen its business in Asia. Not only has it made $6bn worth of investments in Hong Kong, China, and Singapore, it has also made new appointments in the region. As the Asian economy continues to grow, I see this as a smart move. This should hopefully have a positive impact on the share price.

Bear case

With that all said, I do see a few issues with HSBC. Firstly, although its latest results were solid, some figures did worry me. Most notably, revenues were down both in the half-year and Q2 compared to 2020. Should this continue, this could cause issues in the future.

On top of this, although a focus on Asia has the potential to see the bank thrive in the future, it also comes with problems – mainly geopolitical. As my colleague Manika Premsingh highlighted, the firm has faced multiple challenges recently. From Brexit in the UK to US-China tensions, HSBC has been caught in these clashes. Where in previous times it has remained neutral amid political disputes, it recently appeared to be backing Beijing over Hong Kong. With a large percentage of pre-tax profits made in Asia, engaging in political disagreements could have a detrimental impact on the bank. Any backlash from doing so would inevitably hurt the share price.

Will the HSBC share price rise?

I think the latest set of results shows that HSBC is moving in the right direction. As we see the global economy begin to recover, the bank should profit hugely from this. I am a fan of its focus being shifted to Asia as I think this will provide plenty of opportunities in the future. However, I am aware of the potential problems that come with this shift. Geopolitical issues could have a major impact on HSBC, not necessarily for the right reasons. With that said, I think the bank is still in a strong position to thrive, and as such, I would buy.

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Charlie Keough has no position in any 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.

Should I buy Lloyds shares in August?

Charlie Keough — Fri, 06 Aug 2021 15:50:09 +0000

After taking a hit at the outbreak of the pandemic, the Lloyds Banking Group (LSE: LLOY) share price has seen a healthy recovery. With the FTSE 100 stock up over 60% the past year, the release of its half-year results for 2021 saw the share price fall slightly. However, with UK growth forecasts looking positive, is August an opportunity for me to buy Lloyds shares?

Reinstated dividends

After initially halting dividends last year, a decision required by its regulator, Lloyds announced in its latest set of results that a further 0.67p per share is going to be paid to shareholders. That takes dividends over the past year to 1.24p. With a share price of 45.9p, at the time of writing, that means it offers a dividend yield of 2.7%. Although below the FTSE 100 average, at a time when the business is coming out of a gruelling pandemic, I deem this dividend yield an attractive factor when looking at buying Lloyds shares.

More generally, the half-year results also provided some optimism. While net income rose by 2% (to £7.6bn) from the same period last year, profits were at £3.9bn, a vast improvement from the loss seen in the six months to 30 June 2020. Loans and advances were also up £7.5bn for the period – sat just below £450bn. This ponders the question of whether now is a good time to buy Lloyds shares before we witness a solid bounce back, inevitably boosting the share price.

Another beacon of positivity from the results was the recent acquisition of Embark, an investment and retirement platform, for close to £400m. This highlights how Lloyds is diversifying, another positive sign when I’m considering if to buy Lloyds shares.

Lloyds issues

With all the above said, issues with the major bank persist. First of all, and as my colleague Alan Oscroft mentioned, Lloyds operations are focused heavily in the UK. While this can provide opportunities, as many expect the UK economy to have a strong end to 2021 as we hopefully continue to see Covid cases fall, it also poses issues. Should we see a spike in cases, the UK economy could once again face the problems it has done over the past 18 months. Where competitors have diversified, for example, HSBC focusing its operations within Asia, Lloyds has not done so.

Another issue with competition is that there are now banks that can offer a more dynamic service – a concept many customers may crave after the pandemic. Monzo, for me, is a standout in this respect.

Should I buy Lloyds shares?

Although I have highlighted issues with Lloyds, I generally have a positive outlook. The below FTSE 100 average dividend yield does not worry me, as a cautious return post-suspension should have been expected. Also, I think the UK economy has the potential to finish the year strong. Yet, the risk Covid provides makes me wary to buy Lloyds shares. For now, I will not be buying.

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Charlie Keough has no position in any 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.

The HSBC share price is down 20% this month. Is it now time to buy?

Stuart Blair — Fri, 07 Aug 2020 13:08:35 +0000

The bad news keeps on piling up for HSBC (LSE: HSBA). Firstly, the pandemic has led to a large number of bad loans, and the bank has had to set aside huge amounts of money for these. Low interest rates have also strained profits. Unlike other UK banks, Asia-focused HSBC has also been heavily involved in the geopolitical tensions between the US and China, thanks to the national security law in Hong Kong. This crisis seems no closer to resolution and will continue to offer a major challenge for the banking giant. But much of this bad news has been reflected in the HSBC share price, which is down 46% on the year. After a further 20% drop over the last month, is it now too cheap to ignore?

The HSBC share price has dropped after earnings

After the half-year results, there’s not much for shareholders to be positive about. Pre-tax profits fell by 65% to $4.3bn and the bank has said that bad loans linked to coronavirus could reach $13bn. It has already granted more than 700,000 payment holidays on loans, credit cards and mortgages. This was worse than many analysts had expected, and the HSBC share price dropped over 3% on the day of the results. Profits were particularly affected within both Europe and the US, while the CEO stated that performance within Asia was more resilient.

The larger problem

While the pandemic has evidently strained HSBC profits, the geopolitical tensions between China and the US have been an even greater headache. For many years, HSBC’s global outlook has been seen as a positive for shareholders. In fact, over two thirds of profits are generated within Asia, which has long been seen as a high-growth area.

Nevertheless, the current situation within the continent has placed a major strain on the HSBC share price. The decision to support the national security law imposed by China on Hong Kong has also angered many. Although the CEO Noel Quinn denied that the bank would have to choose between operations in the West and the business within Asia, he has stated that “current tensions … inevitably create challenging situations for an organisation with HSBC’s footprint”. As a result, I believe this uncertainty will continue to make HSBC a very risky stock.

What’s next?

The recent poor results have accelerated the need to cut costs at the bank. In fact, the firm is aiming to reduce costs by 3% this year. This will include cutting 35,000 jobs from its 235,000-strong workforce, mainly within Europe and the US. In the US, HSBC will also close a third of its 224 branches. This should help the bank increase profit margins.

As a result, with the HSBC share price at its cheapest since 2009, is it now too cheap to ignore? Personally, I’m not rushing to buy. Although the bank is in better shape than it was in 2009, both the current geopolitical tensions in China, and the problems within the UK economy make it too much of a risk. If I were to buy a bank stock, I’d go for Barclays. HSBC just has too many problems!

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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.

Lloyds share price vs. HSBC share price. Is now a good time to buy?

Rachael FitzGerald-Finch — Thu, 09 Apr 2020 13:20:07 +0000

The Lloyds (LSE: LLOY) share price is dropping. The banking sector is weighing down the FTSE 100. Several banks are suspending dividends and share buybacks, as demanded by the Bank of England (BoE). Lloyds Banking Group is among them.

The BoE is working under the assumption that the dividend cuts will help to provide debt relief. The thinking is the cash will help individuals and businesses that unable to make interest payments over the next few months.

However, investors aren’t impressed. Many are selling their Lloyds shares. Is now a good time to snap them up? Or is there a better banking sector option?

To answer this, I think it’s useful to compare two different banking business models: Lloyds and HSBC (LSE: HSBA).

Lloyds share price vs. HSBC share price

Lloyds bank shares never recovered from the financial crisis. They are now trading around 30p, where they were in 2012.

Admittedly, most investors hold banking sector shares for income, not growth. But with Lloyds having to suspend dividend payments, there’s no return there either. Certainly not in the short term.

HSBC has also stopped providing returns to investors. Like Lloyds, it acted on BoE ‘advice’. Currently, the bank is trading around 417p, compared with a low of 358p in 2008. It boasts a price-to-earnings ratio of 16.8. Contrast this with Lloyds P/E of 8.8. The market clearly expects more of HSBC.

The difference in share price is likely due to HSBC’s more geographically diverse business model. About 75% of its pre-tax profits come from Asia. In comparison, 95% of Lloyds bank’s assets are based in the UK. Consequently, Lloyds is strongly tied to the UK economy.

This means Lloyds’ pretax profit may be more volatile than HSBC. But, HSBC needs more capital to sustain its position.

Banks need capital to lend against

It’s the need for capital that could be difficult for a FTSE 100 bank. And for HSBC especially.

A bank’s assets are the value of the loans it makes. Its liabilities are the value of deposits and other borrowings it needs to finance itself.

At present, shareholders are withdrawing capital by selling banking shares. HSBC’s Hong Kong shareholders are particularly upset. And extremely low interest rates are discouraging retail customers from making deposits. HSBC and Lloyds may have to find other ways of financing.

At the same time, UK banks are required to loan to businesses and individuals. Unfortunately, a government guarantee doesn’t stop inflating balance sheets. This will affect the banks’ capitalisation ratios. And if it comes to it, I think the BoE is more likely to prioritise Lloyds for any capital needs.

HSBC earnings per share have fallen around 5% per year over the last five years. In contrast, Lloyds has improved its EPS considerably. Even with the payouts from the PPI scandal, Lloyds’ 2019 EPS was 75% higher than in 2015.

Last year HSBC paid out around 80% of its profits as dividends. Even without the current crisis, this looks unsustainable. Lloyds is relatively profitable and well capitalised.

Overall, I think Lloyds is better placed to withstand the current economic headwinds and is undervalued. I’d buy it. But as for HSBC, I’m waiting to see how it responds to short-term pressures before I consider it again.

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Rachael FitzGerald-Finch 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.

Investing in the Covid-19 era – I think bank shares are looking attractive

Michael Baxter — Tue, 31 Mar 2020 15:37:46 +0000

During the 2008 crash, banks saw their reputation sink so low that many wondered if it would ever recover. During the Covid-19 crisis they are not exactly regarded as saints, but they do seem to have been among the companies that have seen their image improve.

The turnaround has been 12 years in the making, but I think that banks have finally won back the public’s trust – mostly.

But what about investing in banks? What about shares in HSBC Holdings or Lloyds Banking Group, for example? What about Barclays and Royal Bank of Scotland Group shares? Have they become more attractive too?

The share prices

Most of the banks have suffered especially acute falls in their share price this year.

The FTSE 100 has fallen by just over a quarter since the beginning of the year, but shares in Lloyds, on the other hand, have halved. It has been a similar story with Barclays shares, while the RBS share price has more than halved — from 244p to 114p. For HSBC shares it’s been tough but not quite so bad. Its shares have fallen by slightly less than a quarter.

At face value that feels almost ironic. Shares in the bank that is famous for its links with China has performed much more strongly than the more UK-centric banks. But if you look a little more carefully at HSBC shares compared with shares in Lloyds, Barclays, and RBS, you will see a slight difference in timing. The HSBC share price started to fall a little sooner and has seen a mild recovery, roughly coinciding with with signs that the Covid-19 virus was spreading less quickly in China.

Lower share price means higher dividends

The recent falls in shares pertaining to the four banks has meant the yield has improved — assuming that dividends are maintained. The HSBC dividend yield is now just under 9%. Lloyds dividends are over 10%. RBS dividends are lower at just under 4%, but then the bank has only recently started paying dividends. The Barclays dividend yield sits roughly between the HSBC and Lloyds yield.

With interest rates so low, I would be tempted to say these yields are very attractive.

There is one big question mark hovering, however. Will dividends be maintained?

We just don’t know how weak the economy will be in the post-Covid-19 era. Suppose house prices crash. A significant part of Lloyds’ revenue is from mortgage lending, so how would falling house prices affect it?

Then there is the possibility of a debt bubble. If the economy falls into some kind of depression, might indebted households default in big numbers?

On the other hand, partly thanks to international regulations imposed to reduce banks’ vulnerability in the event of another financial crash, banks have much stronger balance sheets today compared to 2008.

I hate to tempt fate by saying this, but I think that the banks are highly unlikely to need a bailout this time around.

We will always need banks, and after certain teething problems, they have all learned how to adopt digital technology. I think that shares in HSBC, Lloyds, and Barclays are appealing, right now. As for RBS shares, I am not so sure — this crisis is not good timing.

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Michael Baxter has no position in any of the shares mentioned. 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.

Why the HSBC share price rose 6% in September

G A Chester — Fri, 04 Oct 2019 13:36:35 +0000

After underperforming the FTSE 100 in August (a 10% fall versus the index’s 5% decline), HSBC (LSE: HSBA) bounced back in September. Its share price rose 6% over the month, from 591.4p to 624.6p, which was double the Footsie’s 3% gain. Can it continue to outperform the market going forward?

Little company news

Despite the Footsie-beating performance in September, HSBC’s gains lagged those made by its four blue-chip banking peers, as well as most other stocks in the broader financial sector.

The company released little of import on the regulatory newswire over the course of the month. In August, it had announced a share buyback programme of up to $1bn by 18 October, and the bulk of September’s notices detailed multi-transactions to this end.

External events

External, rather than company news, seems to be moving the share price at the moment. HSBC — originally Hong Kong and Shanghai Banking Corporation let’s not forget — makes most of its profit in Asia, with Hong Kong by far the biggest contributor. Of group profit of $12.4bn posted in the latest half-year, $9.8bn came from Asia, with Hong Kong being responsible for $6.4bn of it and China $1.5bn.

The demonstrations in Hong Kong that began in the spring and developed into mass protest movements in the summer are having an adverse effect on the economy. As the protests, and political responses, have unfolded, HSBC’s shares (and the shares of other companies in the region) have waxed and waned with the latest developments.

It’s been the same story with the ups and downs of the ongoing US-China trade battle. A bout of optimism about progress in mid-September saw HSBC’s share price reach its peak for the month of 630.7p. However, let’s zoom out from the minutiae of the month, and look at a broader picture and timeframe.

The big picture

After the big sell-off in global markets in the past few days, HSBC’s shares are trading at under 600p as I’m writing. This compares with a post-financial-crisis high of near to 800p less than two years ago when markets were in a more optimistic mood.

The way I see it, the key questions are: “Does the long-term story of rising wealth in Asia, and other emerging markets, remain intact?” and “Can HSBC deliver strong long-term profit and dividend growth, if managed competently?” If your answer to those questions is “yes”, then like me, you’ll see the current uncertainties and depressed share price as a great opportunity to buy into this blue-chip giant.

Valuation

The stock is trading at 10.2 times forecast earnings with a prospective 6.9% dividend yield. The earnings multiple is cheap and the yield is generous by HSBC’s historical standards. I put this down to the market focusing on the aforementioned immediate matters of Hong Kong protest and US-China trade, rather than the long-term prospects of the business.

Aside from the near-term external uncertainties, HSBC currently has a bit of internal uncertainty that could also be weighing a little on sentiment. It’s searching for a new permanent chief executive following the rather abrupt departure of John Flint in August, less than 18 months after his appointment. Hopefully, it won’t be too long before the group announces its new CEO.

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G A Chester 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.

3 FTSE 100 dividend stocks with yields over 5% I’d buy in July

Roland Head — Sat, 06 Jul 2019 10:32:48 +0000

Are you looking for blue-chip stocks with high dividend yields for your share portfolio?

In this article, I’m going to look at three FTSE 100 income picks with yields of at least 5%, that I’d be happy to buy this month.

154 years of experience

Past performance is no guarantee of the future. But when a business has a long and profitable history, I usually see that as a good indicator of future success.

For example, HSBC Holdings (LSE: HSBA) has been financing trade between Europe and Asia and providing banking services for more than 150 years. It’s survived wars, political upheaval and regulatory changes. I’m pretty confident this will continue.

Although the firm’s £134bn market cap suggests that rapid growth is unlikely, I think the share price reflects this. At 666p, HSBA is trading close to its book value of circa 645p. A forecast dividend of $0.52 per share (41p) gives a yield of 6.2%, which is well above the FTSE average of 4.3%.

Given the high yield, a share price gain of just 2% per year would be enough for HSBC to match the long-term average stock market return of 8% per year.

Over the last couple of years, the bank’s profitability has improved, suggesting modest growth may be possible. I rate the shares as an income buy.

Advertising turnaround

The share price of ad giant WPP (LSE: WPP) is still down by nearly 50% from its February 2017 peak of 1,897p. But the group’s shares have risen by 20% so far in 2019, beating the wider market.

Chief executive Mark Read appears to be making steady progress restructuring this sprawling and fragmented business. He’s made a number of disposals, but the big deal everyone is waiting for is the sale of market research group Kantar.

We may not have much longer to wait. In a statement issued on Monday, WPP said it was in talks with private equity group Bain Capital to sell Kantar in a deal that would value the firm at $4bn.

Cash from this deal would enable Mr Read to make a significant reduction in WPP’s debts, cutting interest costs and improving dividend cover. Although concerns remain about ad spending shifting online, my view is that WPP’s services will remain relevant.

With WPP shares trading on 10 times earnings and offering a yield of 5.9%, I think now could be the time to buy for long-term investors.

A contrarian buy?

Tobacco stocks like British American Tobacco (LSE: BATS) are unloved at the moment. Many investors seem to believe that these businesses are doomed to extinction, as smoking levels gradually drop.

This is a real risk, but I think it’s worth keeping in perspective. British American sold 708bn cigarettes last year. Although this was a 3.5% reduction on the previous year, I don’t think demand is likely to disappear soon.

A more immediate concern for me is the company’s debt burden. BATS ended last year with net debt of £43.4bn. That’s a little too high for my liking, relative to operating profits of £9.3bn.

However, high profit margins and strong cash generation suggest that the firm will be able to pay down these borrowings, which are the result of the Reynolds American acquisition in 2017.

Trading on 9 times earnings and offering a covered yield of 7.4%, the BATS share price suggests a gloomy outlook. Any improvement could deliver attractive gains.

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Roland Head owns shares of WPP. 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 isn’t the only FTSE 100 6% yielder I’d buy today

Roland Head — Fri, 26 Apr 2019 10:40:07 +0000

I’m a big fan of using stock market investments to generate high levels of cash income.

I admit, there’s always a risk that dividends will be cut. But if you pick stocks carefully, I think this is a risk that’s well worth taking over the long term.

Today I want to look at two shares from the blue-chip FTSE 100 index that I think deserve a place in any long-term income portfolio.

A safe 6% income

I reckon one of the safest dividend stocks in the FTSE 100 is Anglo-Asian banking giant HSBC Holdings (LSE: HSBA). This company has played a leading role in financing trade between Asia and Europe for more than 150 years. Today it has more than 39m customers.

Unlike some rivals, HSBC survived the financial crisis without needing to raise fresh cash. Although the dividend was cut, the reduction was smaller than at many other banks and the payout was never suspended.

Although critics question the group’s slow growth and fairly average profitability, I’m not concerned. I think the bank’s solid balance sheet and Asian focus mean that the stock’s 6% dividend yield is pretty safe.

I’d be happy to buy and hold these shares forever. After all, it’s worth remembering that a 6% income reinvested at the same rate for 10 years will provide an 80% gain — even if the shares stay flat.

More risk, bigger returns?

My second pick isn’t quite as safe as I believe HSBC to be. But I think advertising group WPP (LSE: WPP) looks good value at current levels and is likely to deliver a steady recovery over the next few years.

According to chief executive Mark Read, the firm’s performance during the first quarter of the year was “as anticipated“. Like-for-like revenue fell by 2.8% to £3.6bn as a result of client losses during the second half of last year. However, Mr Read says the group’s newly restructured ad agencies are making good progress winning new business.

I’m relaxed about this situation. One reason for this is that by raising £712m with a series of disposals, Mr Read has reduced WPP’s net debt from £4.9bn to £4.2bn over the last year. Despite these asset sales, revenue has been broadly unchanged.

A second factor is that WPP is still in the early stages of its three-year turnaround plan. Last year’s client losses were already known about, and the firm now seems to be making good progress reversing this trend.

Is the WPP dividend safe?

CEO Mr Read has said previously that he plans to maintain the dividend at current levels until the group returns to growth. Is this affordable?

Broker forecasts suggest that this year’s payout of 60p per share should be covered 1.6 times by earnings, which seems reasonable.

In past years, the dividend has also been covered comfortably by free cash flow. I’m not sure if this record will be maintained in 2019, but with debt falling steadily I think a cut looks very unlikely unless market conditions take a turn for the worse. The planned sale of market research group Kantar should also boost WPP’s cash position.

With the shares trading on 9 times forecast earnings and offering a 6.6% yield, I think the bad news is in the price. I’ve bought the shares myself and continue to rate them as a buy.

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