There’s an abundance of high-yield dividend stocks in the UK, almost to the point of being spoilt for choice. These can generate attractive streams of passive income for years and potentially decades.
Glancing across the income side of my Stocks and Shares ISA, one stock stands out to me right now. That’s HSBC (LSE: HSBA), the FTSE 100‘s third-largest company by market cap.
Here’s why I’ve been building a position in this banking goliath.
Strong performance
HSBC operates in 60 countries but its focus is increasingly on Asia. Its long-term growth opportunities in this region appear very attractive due to an expanding middle class and rising demand for wealth management services.
We got a glimpse of this potential recently when the bank reported its H1 results. Post-tax profit came in at $17.7bn, which was 2% lower than H1 last year but still better than analyst were expecting. Its wealth revenue rose 12% to $4.3bn, boosted by a 16% increase in private banking income.
Wealth management in Asia is a competitive market, but it could be a lucrative one as the number of ultra-high-net-worth individuals (particularly billionaires) grows in the region.
Top 10 cities with the most billionaires in 2024
Rank
City
Number of billionaires
1
New York
119
2
London
97
3
Mumbai
92
4
Beijing
91
5
Shanghai
87
6
Shenzhen
84
7
Hong Kong
65
8
Moscow
59
9
New Delhi
57
10
San Francisco
52
Source: Hurun Research Institute
A grand a year in annual passive income
The stock offers a juicy 7.35% dividend yield, which is double the FTSE 100 average. As I write, one share is 640p. That means I’d need approximately 2,100 shares to generate £1,000 a year in passive income.
These would cost me around £13,460, which is quite a hefty chunk of money. But that doesn’t mean I couldn’t buy the stock frequently and gradually work my way towards that figure.
For example, if I invested £100 a week in HSBC, I’d have enough shares within three years to pay me £1,000 in annual passive income.
Of course, the reality is that the share price won’t be static for three years and dividends aren’t certain. So drip-feeding my money into a variety of stocks on a regular basis (or ‘pound cost averaging’) would be a smarter strategy.
Risks to consider
Now, the dividend yield isn’t way above the average for no reason. There are risks here.
Chief among these is China. Its property sector crisis combined with weak household consumption is creating major problems in the world’s second largest economy. This is not ideal for HSBC, given that China is its biggest growth market.
Plus, we’ve got the US election coming up. Neither party will want to risk being seen as weak to voters when it comes to a major geopolitical competitor. Tough rhetoric around China could mount.
HSBC’s new Lebanese-born CEO has been learning Mandarin, underlining China’s importance to the firm.
Finally, the boost to its income from higher interest rates is likely to fade in the coming months. This could make investors less enthusiastic about the stock.
Nevertheless, I think the high dividend yield combined with the long-term growth potential is well worth the risk. With spare cash, I’d happily invest in HSBC shares for passive income today.
The post I’d buy 2,100 shares of this FTSE 100 stock for £1,000 a year in passive income appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Ben McPoland has positions in HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. 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.
