HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) is one of out few FTSE 100 banks that has kept its dividends going when all around were being pared to the bone.
For the year to December 2013, we saw a yield of 4.4%, which was about 1.7 times covered by earnings per share (EPS). Forecasts for this year suggest a yield of a little over 5%, and although there’s a small increase in the cash expected, a portion of that increase is down to a falling share price — over the past 12 months it’s down 7% to 607p while the FTSE has gained 12%.
China
The reason for the share price fall is the same thing that could put downwards pressure on dividends — worries about a slowdown in China, and maybe even some sort of crunch.
The boom of the past few years has seen Chinese property prices soaring, and there’s been parallel growth in credit markets — Chinese borrowing is reaching heights that are making some economists twitchy.
Couple that with the Chinese government’s plan to shift economic stimulus more towards private investment and away from state-led projects, and its desire to get growth down from current levels of around 7.5% per year — and you can see where fears of a crunch are coming from.
Not worried
Having said that, the City’s analysts don’t seem to be too worried about such an eventuality — they have rises in EPS of 9% to 10% forecast for the next two years, with dividend growth lagging those levels a little.
The company itself doesn’t seem to be too worried, and in its annual report for 2013 published in March, chief executive Stuart Gulliver said that “We remain of the view that the GDP of mainland China will grow by 7.4% this year, the UK by 2.6%, the USA by 2.5% and Western Europe by 1.2%“.
But pointing out the volatility that has hit some emerging markets, he did add that “we anticipate greater volatility in 2014 and choppy markets as adjustments are made to changing economic circumstances and sentiment“.
Analyst recommendations are strongly tilted towards the bullish side right now, with 13 out of 29 issuing Buy ratings and just six suggesting we should Sell.
Still good
Should HSBC suffer from a Chinese slowdown, at least its capital position will be significantly healthier than the UK’s high street banks in 2009 — and the chance of a full-blown rout seems remote.
On the whole, I’m cautiously optimistic about HSBC’s dividends, and despite the worries I see them as still an attractive proposition.