Have £1,000 to invest? HSBC is a FTSE 100 dividend share that I’d buy and hold for 10 years
Prospects for the HSBC(LSE: HSBA) share price seem to have improved significantly in recent years. Although the bank’s valuation has fallen by 12% in the last year, versus a 2% decline for the FTSE 100, the long-term growth potential for the business remains high. This could lead to a rising dividend over the coming years.
However, it’s not the only stock with an impressive income investing outlook. Reporting on Tuesday was a stock that currently offers a dividend yield of 8%, and which could be worth buying alongside HSBC for the long term.
Improving outlook
The high-yield share in question is Regional REIT(LSE: RGL). The real estate investment trust (REIT) released half-year results on Tuesday which showed it has made a number of disposals during the period. In fact, it disposed of £60.4m in assets at an average net yield of 4.9%. The company took advantage of the mismatch between valuations and market demand, or completed business plans for more mature assets. As such, it made acquisitions totalling £40.1m, which offer significant asset management opportunities to increase value.
The company’s £50m raising through a retail bond provides it with the capacity to invest further in the next stage of its development, as well as capitalise on further opportunities in the regional property market. This suggests that it could have a bright future at a time when the commercial property sector appears to offer good value for money.
With Regional REIT having a dividend yield of around 8.3%, it seems to offer impressive income potential. The stock also appears to have a wide margin of safety, which could mean that its total returns are impressive over the long run.
Growth potential
Prospects for HSBC also seem to be positive. The company’s pivot to Asia could provide it with a significant tailwind over the next decade, with wealth and spending levels set to rise across the region. Demand for the company’s services may therefore increase, with the investment it’s making in its product offer likely to add a further catalyst to its earnings growth potential.
Higher earnings could, of course, lead to rising dividends in the long run. At the present time, the stock has a dividend yield of around 6.1%. Since dividends are currently covered 1.5 times by profit, there could be significant scope for them to rise over the coming years – especially if the business enjoys improving operating conditions.
With HSBC forecast to post positive earnings growth in the next two financial years, its financial prospects appear to be bright. It trades on a price-to-earnings (P/E) ratio of around 13, which indicates that it could offer a wide margin of safety compared to FTSE 100 sector peers. As such, now could be the perfect time to buy it, with a long-term holding period seemingly likely to provide the most appealing risk/reward ratio for investors.
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Peter Stephens owns shares of HSBC Holdings. 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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