7.2% profit rate! Here is HSBC’s dividend forecast until 2023

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HSBC Holdings (LSE: HSBA ) has had a record low dividend in recent years. However, the market’s profitable dividend, and the prospect of explosive growth in payments for the next two years, now this FTSE 100 A closer look at the revenue stream.

HSBC’s share price of around 530p would yield a massive 4.8% for 2022, according to current dividend forecasts.

This beats the broad FTSE index average of 3.9% by a good margin. And things will get even better for 2023. The dividend yield is about 7.2%.

But do these high dividend yields make HSBC a top income stock to buy? Here, I’ll take a closer look at its earnings forecast for the next two years and explain why I would or wouldn’t buy the bank’s shares for my portfolio.

A rocky road

To recap, HSBC suspended its annual dividend for several years prior to the pandemic. He cut his pay twice during the coronavirus crisis as his income dwindled.

But the bank recently gave its investors plenty of opportunity to celebrate. In the year In 2021, the annual dividend rose to 25 US cents from 15 cents a year earlier. City brokers also expect to continue to grow again as profitability continues to improve.

A dividend of 29 cents is expected this year. And a much better 41-cent reward is projected for 2023.

Great coverage

It is my opinion that HSBC has a brilliant chance of beating these forecasts. The first thing to consider is how well the projected dividend will be covered by expected earnings. And here the dividend cover is between 2.2 and 2.6 times over the next two years, which is more than 2 times what the investor wants.

HSBC has a strong balance sheet to help it make these dividends. The bank had a healthy CET1 capital of 13.6 percent in June. Its strong financial position allowed it to launch $3 billion worth of stock buybacks last year.

So ShuShould I buy HSBC shares?

Buying highly-cyclical stocks like HSBC is a risk in the current climate. The growing threat of a global recession means banks face the prospect of a jump in earnings and a jump in loan defaults.

However, as a long-term investor, HSBC is a company that excites me. I particularly like the company’s large exposure to Asia, where personal wealth levels are rising and, as a result, so is demand for financial products.

A map showing HSBC's geographical operations
Image: HSBC Annual Report 2021

In the year By the end of 2021, Asia will account for 44% of the value of all HSBC customer accounts. And the bank is investing a whopping $6 billion over the next several years to build its position in areas such as wealth management.

I’m impressed by HSBC’s cost-cutting measures to boost long-term earnings (and, by extension, dividends). The company is on track to increase its savings plan by $5.5 billion this year and deliver an additional $1 billion in savings by 2023.

Today, HSBC shares trade on a forward P/E ratio of just 8 times 2022. In my opinion, this rock-bottom valuation, combined with that huge dividend yield, makes the bank a great stock to buy.

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