We recently compiled a list of the U.K. Dividend Champions List: 2024 Rankings by Yield. In this article, we are going to take a look at where HSBC Holdings plc (NYSE:HSBC) stands against the other U.K. dividend champions.
In recent years, investors have shown a preference for global stocks, particularly high-growth options like US technology companies, over UK equities. Over the past decade, the British index has achieved a 6% annual total return compared to 13% for the US broader market. Analysts suggest that this underperformance is partly due to weak earnings, domestic political instability, and the absence of a significant technology sector in the UK market. However, a notable factor is the sharp decline in valuations as investors have steered away from UK stocks. Goldman Sachs remarked that the challenge is not a lack of interest from foreign investors, who currently hold about two-thirds of the UK market capitalization, but rather the limited participation of domestic investors in UK equities.
That said, investing in UK stocks can still be a worthwhile choice. While the UK market lacks significant technology companies, its equities in sectors like finance, energy, and mining provide diversification opportunities that complement the tech-heavy and highly valued US markets. In addition, the UK’s index faces less risk from tariffs and trade restrictions. Goldman Sachs Research highlighted that UK equities could gain from various government measures, such as pension reforms aimed at boosting domestic investment in UK stocks and policies supporting homebuilding initiatives.
Lindsay Matcham, involved in futures sales trading at Goldman Sachs Global Banking & Markets, suggested that UK equities could appeal to investors seeking diversification. She noted that these stocks offer attractive valuations, strong dividend yields, and reduced concentration risk.
Russ Mould, investment director at AJ Bell, presented a rather interesting take on the UK market’s limited exposure to technology stocks. He pointed out that this reduced exposure has made the UK stock market less volatile compared to the US, where technology stocks are a key driver of market fluctuations. Mould observed that, despite its criticisms, the UK market experienced a relatively stable summer compared to the US, attributing this to differences in valuation and the relative expectations of the two markets.
The lower volatility in the UK market presents compelling investment opportunities, particularly given its attractive dividend yields. The FTSE 100 offers a yield of 3.68%, while the FTSE 250, representing medium-sized UK firms, provides slightly lower but still appealing income prospects. This setup allows investors to explore higher-growth sectors, such as smaller companies while benefiting from rising dividends. According to BlackRock, UK dividends are currently growing at a rate of 2-3%, aligning with long-term inflation. Stocks that consistently grow their dividends often have stable cash flows, enabling them to increase payouts over time.
Janus Henderson’s 2023 annual dividend report highlighted this upward trend, revealing that UK dividends reached approximately $86 billion in 2023, a significant rise from the $63.1 billion distributed in 2020. Given this, we will take a look at some of the best FTSE dividend stocks.
Our Methodology:
For this list, we reviewed the UK CCC Dividend list, which highlights UK companies with the longest histories of dividend growth. This list is based on the structure of David Fish’s US Dividend Champions spreadsheet and serves as a useful tool to help identify and screen dividend growth stocks in the UK. From this list, we chose 10 stocks with the highest dividend yields as of December 29 and arranged them in order from lowest to highest yield. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 900 as of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
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HSBC Holdings plc (NYSE:HSBC)
Dividend Yield as of December 29: 6.19%
HSBC Holdings plc (NYSE:HSBC) is a financial services company, based in London. The company serves millions of customers through its different businesses. HSBC’s stock has experienced a significant increase, driven by its ambitious restructuring initiatives and strong third-quarter results, which have positioned the bank for sustained growth. Through these strategic efforts, HSBC is not only optimizing its operations but also laying the groundwork for future expansion. In the past 12 months, the stock has surged by over 22%.
HSBC Holdings plc (NYSE:HSBC), although a globally diversified company, derives a significant portion of its revenue from Asia, which accounts for about half of its total earnings. The rest of its income comes from various global markets, primarily through services like commercial banking and wealth management. Recently, the company has made efforts to deepen its focus on the Asian region.
For the third quarter, HSBC Holdings plc (NYSE:HSBC) reported revenue of $17 billion, reflecting a $1.1 billion increase from the same period last year and a $0.3 billion rise from the previous quarter, indicating positive business momentum. In addition, the bank announced $4.8 billion in shareholder returns, which includes a third interim dividend of $0.10 per share and a share buyback of up to $3 billion, expected to be completed by the time of the full-year results in February. Given its steady performance in Q3 and its relatively low price-to-earnings ratio, the stock appears undervalued and poised for growth.
HSBC Holdings plc (NYSE:HSBC), one of the best FTSE dividend stocks, has been making regular dividend payments to shareholders since 1997. It declared its third interim dividend of $0.10 in October, payable to shareholders on record on December 19. The stock has a dividend yield of 6.19%, as of December 29.
HSBC Holdings plc (NYSE:HSBC) was included in 14 hedge fund portfolios at the end of Q3 2024, the same as in the previous quarter, according to Insider Monkey’s database. The stakes owned by these funds have a total value of over $98 million.
Overall HSBC ranks 2nd on our list of the U.K. dividend champions for 2024. While we acknowledge the potential of HSBC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than HSBC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
