|
Published: January 13, 2010
Remember when big banks paid big dividends?
Before the financial crisis Citigroup (NYSE: C) paid a quarterly
dividend of $0.54; last quarter's dividend was $0.01. Bank of
America (NYSE: BAC) paid a per-share $0.64 quarterly dividend as
recently as late 2008; December's quarterly dividend was $0.01.
But, not all big-bank dividends have faded into memory.
Some large banks around the world avoided catastrophic losses
during the economic downturn. One bank, in particular, not only
offers a solid dividend but strong growth potential as well.
Hang Seng Bank LTD (OTC: HSNGY.PK) is the second-largest bank in
Hong Kong and a subsidiary of U.K. banking giant HSBC Holdings
PLC (NYSE: HBC), whose $204.7 billion market capitalization
ranks it as one of the largest listings on the New York Stock
Exchange. Founded in 1933, Hang Seng Bank offers a wide range of
financial services and operates 220 service outlets in Hong
Kong, and through its subsidiary, Hang Seng Bank (China),
operates 34 outlets on mainland China.
Unlike most big banks these days, Hang Seng Bank pays a high
dividend, and unlike most foreign companies, the bank pays
quarterly dividends. Payments are generally made in April, June,
September and December, with three equal dividends and a larger
dividend in the April period. (If you want to get paid more
often than that,
use this proven income strategy). The last dividend, paid in June,
was $0.142. In 2009, dividends totaled $0.81, for a strong yield
of 5.5%.
The dividend appears solid, as net profits in the first half of
about HK$6.45 billion easily covered dividend payments of HK$2.1
billion. Payments are made in U.S. dollars and, since Hong Kong
dollars are pegged to the U.S. dollar, there is no currency
volatility. Dividends have no foreign tax and qualify for the
reduced 15% tax rate in the United States.
In addition to paying a solid dividend, the bank has excellent
growth prospects, thanks largely to its neighbor to the north.
In 2003, Hong Kong and China signed the Closer Economic
Partnership Agreement (CEPA), which was designed to facilitate
increased trade between the two nations by eliminating trade
barriers. As a result of the increased access to business in
China, Hang Seng Bank established Hang Seng Bank (China) in
2007, a wholly owned subsidiary.
As "Hang Seng" means "ever growing," the bank intends to be true
to its name by taking the opportunity to expand in China.
The bank has been making giant strides in high-growth China. In
the first half of 2009, Hang Seng Bank increased its customer
base in mainland China by 45% from just the first half of 2008.
As a result, operating income from China business increased
+19.9% in the first six months of 2009 from a year earlier. At
the same time, China contributed 11.7% of total bank profits in
the first half, up from 9.4% in the first half of 2008.
Hong Kong itself has been no slouch in terms of economic growth,
but neither has it been immune from problems elsewhere. From
1989 to 2007 GDP grew by an average of +5% per year, making the
island one of the fastest growing economies in the world.
However, as a small island without a lot of resources, Hong Kong
is highly reliant on international trade and exports. The
worldwide financial crisis sent Hong Kong plunging into
recession in the second half of 2008.
But, thanks to China's massive $586 billion stimulus package
early in the year as well as stimulus spending from other Asian
governments, Asia grew industrial production by about +36% in the
second quarter of 2009. Meanwhile, annualized GDP for the region
soared to about 10%.
Hang Seng Bank's results were down substantially in the first
half of 2009. Operating profit fell -26% from HK$9112 in the
first half of 2008 to HK$6740 in the first half of 2009.
However, thanks to growth in Asia, first half 2009 results are
much better than the second half of 2008. Profits were a
whopping +46.1% higher in the sequential six month periods. In
addition, increased worldwide economic growth likely will have
shown improved results in the second half of 2009.
And, things are looking up for 2010. The International Monetary
Fund (IMF) pegs growth for the region at a stellar +5.8% clip
this year, up from +2.8% in 2009. The IMF puts China's growth at
+9% compared with +8.5% in 2009. In contrast, the IMF predicts
that output in the Group of Seven economies (the United States,
Canada, France, Germany, Italy, the U.K. and Japan) will
collectively grow at an anemic +1.3% in 2010.
Hang Seng Bank is well established in the midst of the world's
fastest growing economies and offers upside potential from
growth in China as well as a global economic recovery. The bank
also provides a 5.5% yield, which is something not often offered
along with the growth potential in Asia.
Having come down more than -10% from its highs in late July,
Hang Seng Bank is reasonably priced now.
-- Tom Hutchinson
Staff Writer
StreetAuthority
P.S. If you're looking to supercharge your income, you need to
learn more about Carla Pasternak's "High-Yield Stock of the
Month" for January 2010. This dominant player delivered +50%
gains in 2009 and saw its earnings surge +69% last quarter. It's
never missed a single dividend payment, dividends have rocketed
+800% in the past five years, and the stock still yields nearly
10%.
Keep reading... |
