Forget buy-to-let! I reckon HSBC is a much better buy for 2019

Scene depicting the City of London
Scene depicting the City of London

Over the past few decades, buy-to-let investing has generated a tremendous amount of wealth for investors.

But if you’re thinking about moving into the market in 2019, you should be careful. Returns are not what they were, property prices are falling and the government is clamping down on the beneficial tax benefits investors once enjoyed. On top of this, buy-to-let owners are having to deal with a wave of new regulations designed to prevent bad landlords from mistreating their tenants.

All of these changes mean buy-to-let is no longer the great investment it once was, and with this being the case, I think you would be better off owing blue-chip dividend stocks like HSBC(LSE: HSBA) in 2019.

Global exposure

What’s to like about HSBC? Well, for a start, the bank has a global presence.

For the nine months to the end of September, 75% of group adjusted profit before tax was produced in Asia, 11% across the Americas and just 7.6% of adjusted profit before tax was generated in Europe.

So, if you’re worried about the impact Brexit might have on your portfolio, HSBC’s global exposure indicates to me that the bank is better placed than most other companies in the FTSE 350 to weather the storm.

Market-beating income

Secondly, HSBC is a FTSE 100 income champion. Right now, shares in this global banking giant support a dividend yield of 6.3% compared to the FTSE 100 average of around 4.5%. With income flowing into the bank’s coffers from all parts of the globe, I think this payout is well insulated from any Brexit disruption.

Capital returns

Then there’s capital growth to consider. Over the past three years, shares in HSBC have produced a total return of 15.8% per annum, that’s including both dividends and capital growth. Realistically, I don’t think this rate of return is sustainable as today, shares in the bank are trading at a premium to the rest of the UK banks sector.

Shares in HSBC are changing hands at a multiple of 10.7 times forward earnings compared to the sector average of around 8. That being said, I think that over the long term, shares in HSBC should rise steadily higher as the bank’s earnings grow.

It’s difficult to say how much exactly the shares will gain, but I think share price growth in line with earnings growth is an acceptable benchmark.

City analysts are predicting earnings per share growth of between 4% and 7% over the next two years. When combined with dividend income, this implies the shares could produce a total annual return of between 10% and 13% over the next few years. Compared to the returns on offer from buy-to-let, which according to my figures is around 5% per annum, HSBC seems to be the better buy.

The bottom line

So overall, with shares in HSBC likely to produce a double-digit return for investors over the next few years, I think this stock could be a great addition to your portfolio.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.