Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
HSBC in Focus
Headquartered in London, HSBC (HSBC) is a Finance stock that has seen a price change of 13.2% so far this year. Currently paying a dividend of $1.79 per share, the company has a dividend yield of 12.82%. In comparison, the Banks - Foreign industry's yield is 3.84%, while the S&P 500's yield is 1.65%.
Taking a look at the company's dividend growth, its current annualized dividend of $7.18 is up 76% from last year. Over the last 5 years, HSBC has increased its dividend 4 times on a year-over-year basis for an average annual increase of 48.87%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, HSBC's payout ratio is 30%, which means it paid out 30% of its trailing 12-month EPS as dividend.
HSBC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $6.81 per share, with earnings expected to increase 4.77% from the year ago period.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, HSBC is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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HSBC Holdings plc (HSBC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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