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HSBC brings dividends back amid split-up debate – is it time to buy?

Story Highlights

HSBC, the British multinational bank, reported its interim results with profits better than estimates and announced plans to restore dividends to pre-pandemic levels.

HSBC Holdings’ (GB:HSBA) (NYSE:HSBC) has promised to bring dividends back to pre-pandemic levels as soon as possible, in a move analysts believe could help to push back against investor calls to break up the business.

The bank also remained positive about its full-year outlook for 2022 and rewarded shareholders with a dividend of $0.09 per share for the first half of 2022. It aims to start paying quarterly dividends from 2023.

The company’s move to bring back the dividends looks like a perfect comeback in its ongoing debate with its shareholder, Ping An (FRA:PZX), which has called for HSBC to split its Asian operations off from the main business.

Neil Wilson, an analyst at Markets.com, said, “Powering up the dividend is a clear pushback against calls by Ping An to break up the business,”

The shareholder’s debate

In April 2022, Ping An asked the bank to split its operations between Asia and the rest of the world. The Chinese insurance group, which owns around 8.2% of HSBC, believes it will generate better value for shareholders.

HSBC generates the majority of its revenue from Asia. Many analysts also believe that global costs put pressure on income generated from Asia.

The bank disagrees with the point and believes that it is a risky move that does not guarantee returns for shareholders.

HSBC chief executive Noel Quinn said, “The group would rely on its global network to continue drive profits. Our strength as a well-connected, global institution is the main reason our wholesale clients choose to bank with us, and we are determined to capitalise on the advantages our network gives us.”

He told analysts that he, “aims to restore the dividend to pre-pandemic levels as soon as possible. Our current strategy is the fastest and safest way to get to the higher returns and dividends we all want to see,”

The stock’s performance

HSBC’s stock has been a great performer and is trading up by 43% in the last year. On the other hand, its competitors, Barclays (GB:BARC) and Lloyds Banking (GB:LLOY) are trailing behind. Barclays’s share prices are down by 6%, and Lloyds’s is up by 1.8% last year.

We have used the TipRanks’ Comparison tool to compare these banks’ stock performance in the last year. With the help of this tool, we can compare up to seven stocks at a time on different parameters.

Good results and promising outlook

HSBC’s solid numbers were mainly supported by global rising interest rates, organic growth across its segments, and a deferred tax gain of $1.8 billion in the second quarter.

Its second-quarter results were better than expected, with profit after tax at £5.8 billion, an increase of $1.9 billion. The profit after tax increased by $0.8 million to $9.2 billion in H1 2022. Reported revenues were slightly down at $25.2 billion.

The net interest income grew by 10% to $14.5 billion, which reflected the high-interest rates.

The management is optimistic about its full-year outlook. HSBC expects its net interest income to be around $31 billion in 2022 and $37 billion in 2023. Also, it aims at a payout ratio of 50% for 2023 and 2024.

View from the City

According to TipRanks’ analyst rating consensus, HSBC stock has a Moderate Buy rating based on 14 recommendations. It includes eight Hold and six Buy ratings.

It has an average price target of 643.1p, which represents a 20% change in the price from the current level. The price has a high and a low forecast of 840p and 525p, respectively.

Conclusion

The bank’s management made a compelling case with its results that it is on the right track and a split up would lead to increased costs and destroy more value for shareholders.

However, Ping An is looking at things differently.

Overall, the stock is bullish. Management is confident in delivering another year of growth.  

Disclosure

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