A FTSE 100 dividend stock I'd buy and one I'd sell

Share pickers on the lookout for briliant dividend growth could do a lot worse than to splash the cash on HSBC Holdings(LSE: HSBA), in my opinion.

In 2018, the Asia-focused bank is expected to see profits surge 55%, or so say City experts. And an extra 5% is forecast for next year.

These bright figures, coupled with HSBC's extremely strong balance sheet (its common equity tier one ratio rose 90 basis points in 2017 to 14.5%) supports predictions that dividends will begin marching higher again following three years of payouts being locked at 51 US cents per share. A projection of 53 cents stands for 2018 and this moves to 54 cents for next year.

As a consequence, the FTSE 100 business boasts a market-bashing yield of 5.6% through to the close of 2019. This, combined with its ultra-low forward P/E ratio of 12.9 times makes the bank an irresistible buy today, certainly in my opinion.

I noted last time I covered HSBC that a combination of soaring population levels and increasing disposable incomes in its developing territories should keep banking product demand clipping skywards. And the bank, through its extensive network across Asia, is well placed to harness this trend to generate strong and sustained profits progress long into the future.

Losing its fire

I would be far happier to buy into HSBC than British American Tobacco (LSE: BATS), another big yielding Footsie share, but one whose earnings outlook is far less secure.

Like the banking behemoth, the maker of Lucky Strike and Dunhill cigarettes is also a major player in developing nations, home to the lion's share of the world's smokers. However, I am concerned by the massive legislative headwinds that are spreading from established economies and into these regions that threaten to derail British American Tobacco's revenues growth.

Regions like Asia, Africa and the Middle East still have some way to go to match established economies in terms of rules concerning the advertising, sale and use of cigarettes and similar products in public spaces. But these regions are slowly catching up and this threatens to have a similarly chilling impact on their demand for these combustible goods.

While revenues grew last year thanks to market share grabs across its blue riband labels, news that organic volumes dropped 2.6% last year illustrates the sector's structural decline. And British American Tobacco has to spend a fortune on marketing and R&D of so-called next generation products to battle this.

But City analysts expect the business to generate earnings growth of 6% and 9% in 2018 and 2019 respectively, figures that also support expectations of further dividend growth. Last year's payment of 195.2p per share is anticipated to rise to 204.8p in the present period and again to 219.9p next year.

However, I am still not tempted by the tobacco titan's yields of 4.9% and 5.2% for 2018 and 2019 respectively, nor its cheap forward P/E ratio of 14 times. The acquisition of Reynolds Tobacco in 2017 may stop revenues declining in the near term. But I believe the long-term outlook for British American Tobacco's top line is a lot less assured.

Buy-And-Hold Investing

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Royston Wild has no position in any of the shares 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.

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