Whats more, City analysts expect HSBCs dividend payout to grow around 10% per annum for next few years indicating that by 2016, the companys yield will have risen to 6.3%.
However, it remains to be seen how safe this dividend payout really is. Indeed, HSBC is facing multiple headwinds right now that are squeezing the companys top and bottom lines, compressing profit margins and leaving less cash for dividend payouts.
There are three key traits that should be present in every dividend-paying company. Firstly, the companys dividend should be well covered by earnings with room for growth. Many investors confuse a high yield with safety; this is not the case. A low dividend yield with more potential for growth over the long term is often the better pick.
HSBC dividend payout is covered one-and-a-half times by earnings per share, which leaves room for growth. That said, the companys dividend cover has fallen steadily over the past five years, which indicatesthat the groups dividend is growing faster than its earnings.
Over the long term, this rapid payout growth could become an issue for HSBC. In particular, the group could be forced to rethink its dividend policy going forward in order to ensure that the payout remains well covered with room for growth.
Secondly, investors need to consider HSBCs long-term stability. In other words, how safe is the bank? Realistically, its almost impossible to answer this question. Even some of the Citys top banking analysts have no idea how to correctly asses the risks on HSBCs balance sheet.
Some analysts have claimed that HSBC is facing a $100bn capital shortfall but few analysts have been able to verify this conclusion. On the other hand, HSBC has passed ever stress test regulators have thrown at it over the past few years. So, for the time being HSBC looks safe.
And lastly, the best dividend companies have sustainable dividend payouts. In other words, the payouts are well covered and here to stay.
This is a trait HSBC might not have. The bank has a history of cutting its payout when the going gets tough. For example, during 1999 the dividend was slashed by 60% as the dotcom bubble burst, and the payout was cut again by 50% during 2008 thats twice in 10years.
In comparison,Capitasrecord of paying dividends has been unbroken since October 1987 thats nearly three decades, a record that puts HSBCs dividend historyto shame.
The bottom line
So, how safe is HSBCs dividend current dividend payout? Well, based on the banks dividend record, I think that a dividend cut is likelyat some point in the next few years
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