HSBC Holdings plc isn't the only 5%+ yielder I'd buy today

HSBC(LSE: HSBA) is a true giant of the banking world. It ranks only behind Shell in the FTSE 100 and with a market cap of over £150bn, is bigger than Lloyds, Royal Bank of Scotland and Barclays combined. If I had to buy one Footsie bank and hold it forever, HSBC would be my pick.

The main reason I'd plump for HSBC is its geographic diversification, which is far more extensive than Barclays (over 80% of income from just the UK and US). And of course, UK-focused Lloyds and RBS. This diversification means it doesn't have single-country risk. If one country is in a recession or depression, there are likely to be others elsewhere in the world that are thriving. This gives it a level of stability over the long term, while it also benefits from exposure to faster-growing emerging markets.

Growth and income

Ten years on from the financial crisis, HSBC is now looking set for sustainable revenue growth and with operating costs projected to fall, for strong profit growth too. City analysts are forecasting earnings per share (EPS) of $0.60 for 2017 when it reports its results on 20 February, followed by 17% growth to $0.70 for 2018. This supports expected dividends of $0.51 and $0.52.

At a share price of 760p the forward price-to-earnings (P/E) ratio is 15, which looks undemanding in view of the forecast 17% earnings growth, while a 5% dividend yield only adds to the appeal. As such, HSBC is not only my top Footsie banking pick for its geographical diversification and long-term growth and income prospects, but also a stock I'd buy today due to what I see as its attractive valuation.

Bargain basement rating

Performance materials specialist Low & Bonar(LSE: LWB) may be a far smaller company than HSBC but, like the banking colossus, it has wide geographic diversification. Only Germany (17%) contributes more than 10% to group revenue and the UK contributes less than 5%. Also like HSBC, its profits are rising and its dividend yield is high.

The company today released results for its financial year ended 30 November. The shares are up 11% to 60p, valuing the business at around £200m. Revenue of £446m (up 12% on last year) and underlying EPS of 6.42p (up 7% thanks to favourable exchange rates) both came in slightly ahead of forecasts. The P/E is in the bargain basement at 9.3, while a 3.05p dividend gives a running yield of 5.1%.

Why such a cheap valuation?

Performance was mixed from Low & Bonar's four divisions and included a hefty crash in profit from one of them and some under-performance within parts of another. One-off non-cash impairments actually pushed the group into a loss on a statutory basis. However, the company, which also announced the appointment of a new permanent chief executive today, laid out the problem areas and its strategy to remedy them with admirable transparency and detail.

The overhaul will be quite extensive but the plan, which includes reducing relatively high net debt of £138m by at least £15m this year, looks eminently credible. With management also having maintained the dividend as a reflection of its confidence, I see Low & Bonar as an attractive value play and on this basis I rate the stock a 'buy'.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, Lloyds Banking Group, and Royal Dutch Shell B. 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.

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