I’m always on the lookout for big FTSE 100 companies when they’re being offered in the market at an attractive valuation for dividend investors. A little higher yield at the time you buy can make a big difference to the growth of your income stream over the long term. Right now, I reckon HSBC (LSE: HSBA) (NYSE: HBC.US) is looking a great buy for income.
On the mend
Forget the financial crisis! It’s time to look to the future. Britain’s banks are on the mend. The biggest of them, international giant HSBC, reported much-improved fundamentals within its half-year results released last month.
The company said underlying profit before tax had increased by 47%, bottom-line profit by 23% and earnings per share by 20%. Return on average ordinary shareholders’ equity had reached a very respectable 12%, up from 10.5% for the first half of 2012. Furthermore, sustainable annual cost savings — achieved ahead of target — and good progress on disposals and closures of non-strategic businesses should carry momentum into the future.
A great opportunity right now
HSBC’s improving fundamentals underpin the view of analysts that there’s strong dividend growth to come from the company. Last year, the board dished out dividends totalling $0.45 a share, or 28.53p for investors receiving their payout in sterling. The current analyst consensus is for a 33.33p dividend this year, rising to 37.09p next year — annual increases of 17% and 11%, respectively.
Such potential dividend growth looks particularly attractive because it builds on the sector-leading and market-thumping yield currently being offered by HSBC.
I’ve cast my eye over the bank a number of times during 2013. Back at the start of the year the forecast 12-month yield was 4.6%. That had risen to 4.8% when I looked at the company during April, and to 5.1% six weeks ago. Today, at a share price of 687p, HSBC is trading on a forecast 12-month yield of 5.3% — not only high by the company’s own recent history, but also head and shoulders above the Footsie’s other two dividend-paying banks, Standard Chartered, which currently offers 4%, and Barclays, offering 3.7%. Hence, I rate HSBC a great buy for income investors right now.