With various allegations of fraud and fines hitting the banking sector, shares in HSBC (LSE: HSBA) (NYSE: HSBC.US) have performed surprisingly well over the last three months. They have risen by 7% at the same time as the FTSE 100 has fallen by 2%, which is clearly great news for shareholders.
However, there could be much more to come from HSBC and shares in the bank may be worth buying for the following six reasons.
With the Bank of England seemingly unwilling to raise interest rates by even 0.25%, never mind a couple of per cent, dividend yields could prove to be crucial for investors moving forward. On this front, HSBC scores highly, since it currently yields a hugely impressive 4.8%. Thats around 50% higher than the FTSE 100s yield of 3.3% and shows that HSBC is a top income play.
As well as a great yield, HSBC also has dividend growth potential. It is one of the few banks to have increased dividends per share in each of the last four years and is forecast to do so again next year. Dividends per share are set to be 8.4% higher in 2015 than in 2014, which is over four times the current rate of inflation.
The main reason for reliable dividend growth is resilient profitability. Unlike most of its peers, HSBC remained hugely profitable throughout the credit crunch and, as such, is arguably a more reliable bank to own than many of its peers moving forward. With the sector not yet out of the woods and the Eurozone being ever-weak, this could prove to be a great asset for investors.
However, its not all boring and stable. HSBC is due to increase its bottom line by 6% in the current year and by a further 7% next year. This shows that the bank can at least match the wider market growth rate which, at a time of continued uncertainty for the banking sector, is a notable achievement.
Bright Long-Term Prospects
With a sizeable chunk of its business being in Asia, HSBC has the potential to tap into enticing long term growth rates of emerging markets such as China. With the country expected to continue its transition towards a consumer-led economy, demand for new loans is expected to increase. With HSBC being well-positioned in the Chinese and wider Asian markets, it could benefit from the continuation of such trends in the long run.
Despite all of the above, HSBC continues to trade at a hugely attractive valuation. For example, shares in the bank currently have a price to earnings (P/E) ratio of just 11.8, which is well below the FTSE 100s P/E of 13.5. As such, there appears to be considerable upside potential from a rerating, which would be great news for investors in the bank.
While HSBC appears to be well worth buying right now, it’s not the only company that could help you retire early, pay off the mortgage, or simply enjoy a more abundant lifestyle.
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Peter Stephens owns shares of HSBC.