A 6%-yielding FTSE 100 dividend stock at a rock-bottom price that I’d buy

Regular readers here at The Motley Fool will know of my extremely-cautious take on London’s listed banks.

First and foremost, I’m worried about how they will fare in Brexit Britain, where toughening economic conditions from next March’s exit date could smash revenues growth and drive bad loans higher.

These businesses also face the ongoing challenge of painful legacy issues and, in particular, that of the payment protection insurance (PPI) scandal which has almost another full year of new claims before the deadline kicks in. This is a particular problem for Barclays and RBS on account of their balance sheets, which are much weaker than that of fellow UK-focussed institution Lloyds.

A better selection

But as I’ve said before, I wouldn’t consider the entire banking sector to be a no-go area for investors. Indeed, I’ve long talked up the exceptional earnings outlook for HSBC Holdings(LSE: HSBA) on account of its broad footprint in emerging markets.

And half-year trading numbers unveiled in August reinforced my upbeat assessment. The FTSE 100 bank advising that profit before tax from Asia leapt 22% between January and June, this rampant revenues growth driving adjusted revenues at group level 2% higher to $27.5bn.

The market decided to focus on news that group adjusted pre-tax profit fell 2% year-on-year to $12.1bn, though, driven by a sharp rise in operating expenses (up $1.1bn to $17.5bn). I’m not discouraged, however, as these costs reflect the vast investment HSBC is making to accelerate sales growth in Asia. The bank is also splashing the cash to improve its digital capabilities and its headcount in key divisions.

Those 6%+ dividend yields

City brokers are anticipating that HSBC will record a ripping 51% earnings improvement in 2018, and that it will follow this with an additional 5% rise next year.

Despite its resolute performance, investors are refusing to buy into the banking behemoth’s investment case, and this is reflected by its rock-bottom valuation. It carries a forward P/E ratio which sits inside the widely-accepted value terrain of 15 times

There’s plenty of terrific, dirt-cheap shares that investors can find across the Footsie, of course. What really sets HSBC apart though is that investors can latch onto eye-popping dividend yields as well. A 51-US-cent-per-share is predicted for 2018, matching the reward of last year and yielding a stunning 6.1%. And a similar dividend is anticipated for 2019.

It could be argued that Footsie share hunters have been minded to stay away, or to even dump the business, in response to the mounting trade wars between the US and regional economic powerhouse of China, as well as the possibility of contagion across Asia further down the line.

I still believe that the bank should have more than enough about it to continue delivering impressive shareholder returns. And the bank remains largely bullish too, commenting last month that “the fundamentals of Asia remain strong despite rising concerns around the future of international trade and protectionism.” HSBC also noted that “the diversity of the group underpins our ability to manage the external environment effectively.”

I remain convinced that its robust position in far-flung Asian markets make HSBC a top-class growth and dividend share to buy right now.

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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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