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Buy HSBC for sturdy income

The Asia-focused bank is strengthening its balance sheet and offers a sector-beating yield
May 18, 2017

Before the financial crisis banking stocks were known as income stalwarts. However, since 2008 the vast majority of major UK-listed lenders have been forced to cease or significantly cut their dividend payouts. Against this backdrop, HSBC (HSBA) is a dividend king. Unlike other banks, HSBC has maintained generous dividends since 2009. And with risk-weighted assets reducing and capital levels improving, the banking giant is in a good position to continue this.

IC TIP: Buy at 676.9p
Tip style
Income
Risk rating
High
Timescale
Long Term
Bull points
  • High dividend yield
  • Improving capital levels
  • Expanding in Asian growth areas
  • Costs falling
Bear points
  • Trades at a premium to peers
  • Wealth management revenue volatile

As arguably the only remaining 'universal bank' (commercial and investment banking as well as a gamut of other financial services) within the UK-listed sector, HSBC has benefited from the diversification of its operations. However, geographically the banking group is looking to Asia for growth and reducing unprofitable overseas operations. Management is aiming to grow its businesses, particularly in China's Pearl River Delta and South East Asia, taking advantage of growing middle classes, demand for savings products and increased trade within these regions. In December it launched its first own-branded credit cards in mainland China. Meanwhile, new retail banking and wealth management customer numbers in the Pearl River Delta area increased by 51 per cent in 2016 compared with the previous year. It grew its Asian mortgage books by the same amount.

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