HSBC shares have climbed this morning after the bank beat analyst’s expectations today by announcing a 10 per cent rise in profits for the first half of this year, driven by strong performance in Hong Kong. The bank reported pre-tax profits rose to $13.6bn in H1, up from £12.3bn a year ago. Revenues were up from $31.1bn from $32.9bn.
The update comes just weeks after the bank announced that it is to cut around 50,000 jobs over the next two years as it shifts resources to more ‘promising’ Asian markets.
Although shares in HSBC, Europe’s biggest bank by assets, are down more than five per cent year-to-date, today’s news has been received positively – with shares climbing some 0.9 per cent in early morning trading.
HSBC’s positive news will no doubt shift more attention to bank stocks, the sector firmly back in favour in recent months for its ability to pay high dividend income coupled with the increasing number of investors on the lookout for healthy income sources.
According to a report from Capita Asset Services last month, underlying dividends paid out by UK companies in the second quarter of this year reached their highest level since 2008 – this rise driven by banks increasing their payouts as they recover from the financial crisis.
For investors looking for exposure to HSBC, and financials generally, within a high-rated income fund could look at JOHCM UK Equity Income fund as one good option.
James Lowen and Clive Beagles manage the 5 Crown rated fund. HSBC is the funds top holding at 6.33 per cent of the portfolio, while financials make up more than 37 per cent of holdings.
The UK Equity Income fund invests in mostly medium- and large-sized companies – with the managers’ focus firmly on dividends. The managers believe dividends are the truest indicator of financial health and potential – and therefore will only a buy a stock that distributes a level of income that is higher than the market average.
The fund also has Lloyds Banking Group in its top ten holdings (3.01 per cent). Lloyds reported a 15 per cent year-on-year increase last week on its first half profits.
The bank's price has risen more than nine per cent year-to-date - the rise fuelled by an upbeat earnings report, which paved the way for higher dividends and positive reception from City analysts.
JOHCM UK Equity Income Fund versus IA Uk Equity Income Sector