Over the past couple of months, both Lloyds and Barclays have had a lot of time in the spotlight. And this has been well deserved, as the share prices for both companies have risen sharply.
Due to Brexit headwinds subsiding somewhat, these banks that have a large domestic tilt in their operations have been benefactors of this reduced uncertainty. Added to this would be the increased demand for the products offered (think mortgages, personal loans, savings accounts at a retail level) if we see a decent rebound in consumer sentiment.
Amidst all of this, there is one bank which has slipped under the radar. HSBC (LSE: HSBA) didn’t share in the Q3 ‘Brexit bounce’ that other banks did. However, this lack of recent share price appreciation is not something that would discourage me from buying into it.
HSBC has a higher dividend yield than both Lloyds and Barclays. The yield currently stands at 6.86%, in contrast to Lloyds at 5.45% and Barclays at 4.14% respectively. Thus for investors looking to buy into a company in the financial sector of the FTSE 100 for income – I would recommend HSBC versus the other two.
In the latest report on Q3 earnings, the bank said it was looking to maintain the current full-year dividend, meaning that there is little chance of an upcoming dividend cut, which would have disappointed investors who had bought the shares for the income element I mentioned above.
Whenever people hear word of a restructure, it automatically puts fear into them. They think worst case scenario — that the business is really struggling and that job cuts are looming. Indeed, when interim CEO Noel Quinn mooted plans for a remodel of the bank last month, it is understandable that the share price is lower now than it was before the statement.
From my point of view, I do not see this as a big negative for the firm in the medium term, and so would use this opportunity to buy into the business at relatively cheap levels. HSBC is a huge global operation, employing roughly 238,000 people around the world. It is understandable that there are efficiencies that can be made by trimming down the workforce and closing some loss-making ventures.
These efficiencies can enable the bank to focus on areas where it is performing well and accelerate growth into new projects. It remains very profitable in Asia (despite the issues in Hong Kong) and this will remains a key area for growth. New projects such as pushing forward with new technological and digital capabilities again is something that should boost longer-term competitiveness in the industry.
This should in turn offer investors good medium-to-long term share price appreciation.
Overall, I am warming much more to the prospect of adding HSBC into my portfolio due to the dividend yield and remodelling plans, and think other income-hungry investors should look into it as well.
Jonathan Smith owns shares in Lloyds. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019