HSBC Holdings plc: A Cheap High Dividend Stock to Invest In Now

HSBC Holdings plc (HSBC) is a global banking and financial services company with a strong track record and a compelling investment case. With a market capitalization of over $150 billion, HSBC is one of the largest banks in the world, operating in over 60 countries and territories. The company's extensive global presence and diversified revenue streams make it an attractive investment option for those seeking exposure to the financial services sector.

One of the key reasons to consider HSBC as a high dividend stock is its consistent and growing dividend payout. In the first half of 2024, HSBC approved a second interim dividend of $0.10 per share, in line with its target dividend payout ratio of 50% for the year. This dividend payout is a continuation of HSBC's history of providing distributions to shareholders, with a stable dividend per share over the past year. The bank's dividend growth is supported by its strong financial performance and earnings growth.

HSBC's financial performance in the first half of 2024 was robust, with a profit before tax of $21.6 billion, compared to $21.7 billion in the same period in 2023. The company's revenue also increased by $0.4 billion compared to the same period in 2023, driven by higher, more diversified revenue from its wealth management and core international businesses. HSBC's annualised return on tangible equity (RoTE) was 21.4%, or 17.0% excluding notable items, demonstrating the bank's strong earnings power and profitability.

HSBC's valuation metrics indicate that the stock is undervalued compared to its peers and industry averages. The company's price-to-earnings (PE) ratio of 8.7x is significantly lower than the peer average of 13.7x and the US Banks industry average of 12.1x. This suggests that HSBC's stock is relatively cheap compared to its earnings. Additionally, HSBC's valuation score of 5/6 indicates that the stock is trading below its fair value, based on a comparison of its share price to its fair value, analyst forecasts, and its price relative to the market.

HSBC's dividend growth prospects are supported by its strong financial performance and earnings growth. The company's target dividend payout ratio of 50% for 2024 suggests that there is room for dividend growth in the future. Additionally, HSBC's planned share buyback of up to $3 billion, which is expected to be completed within three months, could potentially boost the bank's earnings per share, leading to an increase in the dividend payout.

However, HSBC faces several primary risks and challenges that could impact its long-term investment potential. These include interest rate risk, credit risk, operating expenses, regulatory risk, geopolitical risk, and technological risk. To mitigate these risks and challenges, HSBC has implemented various strategies, such as diversifying its revenue streams, managing its capital ratio within its target range, and maintaining a strong balance sheet. By effectively managing these risks, HSBC can enhance its long-term investment potential.

In conclusion, HSBC Holdings plc is a cheap high dividend stock to invest in now, with a strong track record of financial performance and dividend growth. The company's undervalued valuation metrics, supported by its robust earnings and dividend payout, make it an attractive investment opportunity for those seeking exposure to the financial services sector. Despite the risks and challenges facing the company, HSBC's effective risk management strategies and strong financial performance position it well for long-term investment success.