HSBC share price has remained in a tight range in the past few weeks. It was trading at 874p on Thursday, a range it has remained at since May 12 of this year. This price is about 26% above the lowest point this year. This article explains some of the top reasons to buy HSBC shares.
HSBC has a 5.58% dividend yield
The first main reason to buy HSBC shares is that it has a higher dividend yield, making it ideal for income-focused investors. It has a yield of 5.68%, high than Barclays’ 2.48%, Lloyd Bank’s 4.02%, and NatWest’s 4.1%.
HSBC’s dividend yield means that a £10,000 investment will bring in about £558 a year as long as it remains constant. This dividend yield is above the UK inflation rate of 3.4% and gilt yields.
Investing in a high-dividend company is a good thing because one benefits regardless of the stock performance. If the stock rises, the dividend yield falls, but one benefits from its price return. Similarly, if the stock falls, the decline is offset by the higher payments.
HSBC’s dividend is safe as the company has a payout ratio of 62%, lower than other UK banks.
Further, the company is complementing its dividend policy with its share buybacks. It acquired millions of shares worth $2 billion last year, and the company recently announced a $3 billion repurchase program. These buybacks have helped to reduce the number of outstanding shares from 20.42 billion in 2021 to 17.7 billion.
Share buybacks help to boost value by raising the earnings per share. For example, assuming that HSBC pays a constant $1 billion in dividends, it means that it is paying them to 17.71 billion shares today, instead of 20.42 billion in 2021.
HSBC has more room to boost its returns as its target CET1 ratio of between 14% and 14.5% is higher than Lloyd’s target of 13%.
HSBC is managing its costs well
Meanwhile, HSBC is managing its costs under Georges Elhedery, the CEO. The company has announced a series of layoffs, a move that the company hopes will make it more profitable.
HSBC slashed about 40% of its 175 managers and other employees as it seeks to save over $3 billion a year. Some of these layoffs are because of the creation of the corporate and institutional banking division.
The company has done more work to reduce its costs and boost its profits. For example, it has exited some of its slow-growing and less profitable markets like Argentina, South Africa, France, Canada, and the United States.
It has then intensified its presence in Asia, which it sees as a crucial growth engine for the company. For example, it hired Christopher Chua as the head of M&A in Asia and the Middle East.
The most recent results showed that HSBC’s profit before tax fell by $3.5 billion to $9.5 billion. This decline was because of its disposals of its Argentine and Canadian businesses. Its quarterly profit jumped by $1 billion, excluding those disposals.
HSBC share price has strong technicals
The other bullish catalyst for the HSBC share price is that it has strong technicals. The chart above shows that it has remained above the 50-day and 100-day Exponential Moving Averages (EMA).
The stock has also formed a bullish flag pattern, which is represented in purple above. This price action comprises of a vertical line, which resembles a flagpole, and a channel, which is the flag section.
Therefore, the stock will likely have a bullish breakout, with the next point to watch being the year-to-date high of 913p. A break above that level will point to more gains, potentially to 1,000p.
Read more: HSBC share price is soaring: technicals point to more gains
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