One of the biggest dividend payers in the FTSE 100 will have to signal a cut within six months, according to a research note that described HSBC’s results last week as “quite dreadful”.
Analysts at Bernstein said it was impossible for the bank to sustain its progressive dividend policy in the face of low interest rates, a slowdown in Hong Kong and worsening loan impairments.
In effect, they recommended that investors sell the shares, putting an “underperform” label on the stock and forecasting that the price could fall from 455p to 380p, which would be close to the nadir plumbed in the depths of the banking crisis in 2009.
At its results last week, HSBC lifted the full-year dividend from 50 cents to 51 cents, a payout that cost the bank $10 billion. It said it was able to justify the increase because it was more than covered by the additional $11.3 billion of capital generated in the year.
Douglas Flint, the chairman, described the results as “broadly satisfactory”, but said that further dividend growth would depend on the long-term overall profitability of the group.
Advertisement
Chirantan Barua, senior analyst at Bernstein, suggested that HSBC might cut to 40 cents in the current year because of the low interest rate environment and the sharp slowdown in its core market of Hong Kong: “In this environment, we find it impossible for the bank to sustain its progressive dividend policy and expect the bank to signal a cut any time in the next six months,” he said.
HSBC is one of the biggest dividend payers in the country and a key investment for income funds and pension funds. Investors reliant on income are already struggling because of sharp dividend cuts by most of the mining sector.
While some analysts increasingly question the ability of HSBC to raise the dividend, most believe that it should be able to hold it unless economic conditions worsen markedly.