Today I am looking at global banking leviathan HSBC Holdings‘ (LSE: HSBA) (NYSE: HSBC.US) dividend outlook past 2014.
Get set for double-digit dividend growth
In recent days, fears over growth in developing markets has whacked investor appetite for stocks with major exposure to these territories. HSBC has been one of these casualties, but in my opinion the firm’s premier position as the go-to bank in the lucrative nations of Asia-Pacific make it a great pick for those seeking great earnings, and consequently dividend, growth in coming years.
Indeed, City analysts expect the company to punch earnings per share growth of 27% for 2013, results for which are due on Monday 24 February. Although this is expected to slow in coming years, predicted earnings rises of 9% and 10% in 2014 and 2015 respectively still represents strong expansion.
And these growth projections are expected to continue supporting solid rewards for dividend hunters. HSBC was forced to slash the full-year payout from 64 US cents per share to 34 cents in 2009 as the global banking crisis crushed profits, but a resumption in the firm’s progressive dividend policy has seen payments advance at an inflation-busting compound annual growth rate of 7.3% since then.
Analysts expect the company to crank up the dividend 15.1% in 2013, to 51.8 cents, with an additional 10.2% rise predicted this year to 57.1 cents. A further 11.4% advance has been pencilled in for 2015, to 63.6 cents.
Predicted payouts for this year and next create monster dividends of 5.3% and 5.9% respectively, making mincemeat of the banking sector’s forward average of 3.6%. This also smashes a corresponding reading of 3.1% for the entire FTSE 100.
Investors should be aware that dividend coverage comes in at 1.8 times prospective earnings through to the end of 2015, below the widely considered security watermark of 2 times. While this reading is by no means alarming, HSBC’s ability to generate shedloads of capital should help to mitigate any fears — indeed, the bank’s Tier 1 capital ratio climbed to 13.3% as of the end of September from 12.3% at the close of 2012.
A combination of extensive cost-cutting and strong revenue growth in key regions continues to drive the bank’s performance, and HSBC saw pre-tax profit surge 34% during January-September, to $18.1bn.
With economic expansion stabilising in China — a critical issue for its Asian businesses — and the financial backdrop in the West showing signs of improvement, I believe that HSBC should continue to enjoy solid earnings and dividend growth for some time to come.