Splendid exposure to Asian markets
Reflecting a trend across the entire banking sector, fears of significant economic cooling in developing markets has driven activity at HSBC steeply lower in recent times. While total group revenue fell 4% to $31.4bn during January-June, souring market appetite at its Global Banking and Markets division drove turnover 12% lower during the period to just over $5bn.
Still, I believe that those looking to the long term should take confidence from the firms terrific exposure to emerging markets, particularly those of Asia. HSBC currently sources around 65% of total profits from the continent, a situation which should help revenues resume an upward trend sooner rather than later.
Indeed, the firm said this month that it had increased forecasts for mainland China GDP growth in 2014 to 7.5% and expect Hong Kong to benefit from export growth in the second half of the year.
And on a long-term timescale, I believe that once momentum in developing regions recovers and investor sentiment improves, the effect of a surging middle class combined with a subsequent demand boom for HSBCs suite of banking products should deliver strong revenue growth in coming years.
Dividends expected to stroll skywards
After the fallout of the 2008/2009 financial crisis forced HSBC to take the scythe to the dividend, the bank has worked diligently to restore its reputation as a go-to payout stock and has lifted the full-year payment as a compound annual growth rate of 10% in the five years since then.
The bank has got dividends ratcheting along at such as pace thanks to its ability to churn out plenty of cash, helped by a stream of asset disposals and portfolio run-offs. Against this backdrop HSBCs core tier 1 capital ratio rose to 11.3% as of the end of June, and broker Investec expects this to advance to 12.5% by the close of 2015 and to 13% by the end of the following year.
On the back of this, City analysts expect HSBC to lift the full-year payment 4% this year to 51 US cents per share, and an extra 10% increase is anticipated in 2015 to 56 cents. These figures produce giant yields of 4.8% for 2014 and 5.2% for 2015, making mincemeat of a prospective average of 3.1% for the entire banking sector.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.