HSBC has taken a bit of a beating over the past few years just like all the other banks, but I think this one has done a solid job of steering through the crisis. Earnings and dividends may be down substantially from the peak years of 2007/8, but things are not remotely as bad as they have been at some other banks.
And there are new plans for growth. The recently announced a 3-year plan to improve returns and position the company for new growth is now in full swing, and over the next few years we’ll find out if it’s working or not.
So does the world’s second largest bank add up as an investment?
Minimising risk
The first thing I look for in any investment is safety, and HSBC is about as safe as a bank can be. It’s huge and very internationally diverse with operations in most parts of the globe. It’s the number two bank in the world with its sights set on being number one, it has been profitable every year for a very long time and it always pays a dividend.
The earnings are generally quite stable and so it’s relatively easy to estimate what sort of earnings the company may make in the future and what sort of dividend it’s likely to pay.
Maximising returns
But there’s more to investing than safety – most people want good returns too, from dividends, earnings growth and an increasing share price too. Speaking of share price, you can see a chart of the last 10 years below:
That’s not a great return for 10 years, although the dividend would have been some consolidation. The point is that the market is now offering the chance to buy the same company, with about the same level of earnings and dividends, but for a substantially lower price than 10 years ago.
Growth
The table below shows the long-term results that HSBC has generated.
The growth rate over that period is something like 2%, although you can see clearly that this includes a period of high growth up to 2007 followed by a decline in earnings during the recession and banking crisis.
This is a relatively poor growth rate, with the median for large companies being closer to 7% or 8%.
Because of that, HSBC is unlikely to be of interest to…
