He FTSE 100 offers investors a global smorgasbord of high-quality dividend stocks. So much so that sometimes I find it difficult to choose from the variety that offers me an attractive passive income.
However, there is one cheap UK banking stock that is catching my eye at the moment.
An Asia-focused bank
HSBC (LSE: HSBA) is a global bank, but has a particular focus on Asia. This region contains some of the fastest growing economies in the world.
According to the United Nations, South Asia grew by about 5.3% in 2023 and will grow another 5.2% this year.
India, where HSBC opened the country's first ATM in 1987, is the world's fastest-growing large economy. It is expected to grow by 6.2% in 2024.
Even China, beset by economic woes and a long-running housing crisis, is forecast to see 5% economic growth this year.
I want my portfolio to have more exposure to the growth of Asia's growing middle classes. But investing directly in Indian or Chinese stocks is too risky for my taste.
So HSBC shares, trading at a very cheap price-to-earnings (P/E) ratio of 6.4, offer me the perfect substitute to do this.
Meanwhile, dividend prospects look excellent.
A passive income plan
In 2023, HSBC paid a total dividend of 61 pence per share (48 pence at current exchange rates). Based on a share price of £5.92, this gives a mammoth dividend yield of 8.1%.
| Financial year | Dividend per share |
| 2025 (forecast) | $0.62 |
| 2024 (forecast) | $0.77* |
| 2023 | $0.61 |
| 2022 | $0.32 |
It means you would need to invest around £12,350 to reach £1,000 a year in passive income.
But what if I can't pay that money up front? An alternative approach could be to gradually move towards that figure.
For example, if I invested £515 a month, that would take me to 1,043 shares after a year. Then, after two years, you would have approximately 2,080 shares needed to earn £1,000 of annual passive income.
Of course, in reality, stock prices don't remain static from month to month. They will go up, meaning I will get fewer shares, and they will also go down, allowing me to accumulate more.
This drip-feeding strategy is called pound-cost averaging and may be safer than investing a lump sum all at once. Plus, doing it in a stocks and Shares ISA means you wouldn't pay tax.
Please note that tax treatment depends on each client's individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any type of tax advice.
Thinking long term
Now, it goes without saying that dividends are not guaranteed, even in the case of global banking giants. The financial crisis taught us that. That's why you would want a diverse basket of dividend payers.
What's more, interest rates will fall, reducing banks' profits. And the crisis in China's real estate sector could worsen, hitting HSBC's profits and dividends.
In fact, its profits fell 80% in the fourth quarter after the bank recorded a $3.4 billion impairment on possible losses related to its stakes in a Chinese bank.
However, this deterioration has not reduced its dividend capacity and a new share buyback worth $2 billion was announced.
Looking ahead, the company's strong competitive position and balance sheet give me confidence that this is a solid long-term investment.
Its strategic focus on Asia, the world's fastest-growing region, is sure to pay off (literally) over time.
This is why HSBC is now part of my own income portfolio and why I intend to continue buying shares in 2024.
