LONDON – Remember the good old days when investors held banking shares for their safe dividend income? The financial crash shattered that. More recently, banking stocks have been a recovery play for those investors brave enough to bet that the eurozone crisis wouldn’t blow up in their faces. It’s been a remarkably successful bet.
But if you’re hankering for a safer play on the banking sector and yearn for those reliable dividends, it’s worth having a look at HSBC Holdings plc (LON:HSBA). After recent broker upgrades, its shares are on a prospective yield of 5%, with a 4.2% historic yield in the bag. That’s well ahead of Standard Chartered and Barclays PLC (ADR) (NYSE:BCS), the other two dividend-paying banks. And HSBC Holdings plc (LON:HSBA) surely has the safest dividend in the sector.
Safety in numbers
It’s not just that HSBC Holdings plc (LON:HSBA) is the second largest company on the FTSE 100, with a market cap roughly equal to the other four banks put together. HSBC’s global footprint underpins its safety. With over 6,000 offices in 80 countries, its worldwide reach provides a strong competitive advantage to capture international trade flows and service multinational corporations.
Over 100 million retail and three million corporate customers give HSBC Holdings plc (LON:HSBA)’s brand defensive qualities. Each year, U.S.-based Davis Brand Capital names its top 25 global brand leaders. In a list dominated by titans such as Apple Inc. (NASDAQ:AAPL), The Procter & Gamble Company (NYSE:PG), and The Coca-Cola Company (NYSE:KO), HSBC is just one of a handful of non-U.S. corporations.
That global spread imparts geographic diversification. Risk assets are broadly spread across Europe, Asia Pacific and the Americas. Earnings are also dispersed, though more skewed than assets and more exposed to China. Asia Pacific contributed 65% of total pre-tax profits last quarter, with 25% coming from Hong Kong alone.
HSBC Holdings plc (LON:HSBA)’s is mostly a sober, traditional sort of banking. Just over a third of profits come from its Global Banking and Markets division, and not all of that is investment banking.
A healthy 12.7% core tier one ratio also makes it one of the best capitalized banks. After the disastrous acquisition of U.S. sub-prime lender Household, a chastened management team is focusing on shareholder returns. Emerging markets, especially Latin America and Asia, should provide growth.
With HSBC Holdings plc (LON:HSBA)‘s shares trading at 1.1 times net assets, it looks a good time to lock in that 5% yield.
The article Buy HSBC Holdings for the Best Banking Yield originally appeared on Fool.com and is written by Tony Reading.
Tony owns shares in HSBC, Standard Chartered and Apple but no other shares mentioned in this article. The Motley Fool recommends Apple, Coca-Cola, and Procter & Gamble. The Motley Fool owns shares of Apple.
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