All investors love getting big returns from their portfolio, whether it’s through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company’s earnings paid out to shareholders; it’s often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
HSBC in Focus
HSBC (HSBC – Free Report) is headquartered in London, and is in the Finance sector. The stock has seen a price change of -2.51% since the start of the year. The bank is currently shelling out a dividend of $1.79 per share, with a dividend yield of 14.89%. This compares to the Banks – Foreign industry’s yield of 4.08% and the S&P 500’s yield of 1.7%.
In terms of dividend growth, the company’s current annualized dividend of $7.18 is up 76% from last year. HSBC has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 48.87%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as a dividend. HSBC’s current payout ratio is 30%. This means it paid out 30% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, HSBC expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $6.81 per share, which represents a year-over-year growth rate of 4.77%.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that HSBC is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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