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HSBC (LSE:HSBA) is one of the world’s largest banks and the third-largest company in the FTSE 100 index, measured by market-cap. With a presence in 64 countries and total assets of $3tn, investors in HSBC shares have exposure to a financial titan with a truly global reach.
I don’t own HSBC shares, but I’m strongly considering buying some. Before investing, it’s helpful to explore the return I’d have made from a £1,000 investment five years ago.
Let’s crunch the numbers.
Five-year performance
As the graph below shows, the story of HSBC’s performance over the past five years is one of two halves. From May 2018 until September 2020, the stock was stuck in a consistent downtrend.
Since its pandemic nadir, it’s rebounded. In fact, the share price has more than doubled since it touched a five-year low. As I write, the shares trade for 594.50p each.
Although the stock’s performance over the past two and a half years has been impressive, longer-term shareholders will have to demonstrate a little more patience.
Five years ago, the HSBC share price stood at 735.80p. That means I could have bought 136 shares for £1,000.69. Today, my shareholding would have shrunk in value to £808.52 — that’s a 19% fall.
However, I also need to factor dividends into my total return calculations. Over the period, I’d have earned £161.45 of passive income. Including that sum would bring me near the breakeven point at £969.97.
It’s worth noting that HSBC suspended its dividends for much of the pandemic, in line with other FTSE 100 banks, at the Prudential Regulation Authority’s request.
A bright outlook
It’s fair to say the five-year return is disappointing, but what does the future hold in store?
Amid worries circling the banking sector, I think there are reasons to be optimistic about HSBC. For starters, it’s been a beneficiary of the crisis due to its £1 takeover of Silicon Valley Bank UK following the lender’s collapse.
That move provided a £1.2bn boost to HSBC, helping it triple pre-tax profits in the first quarter to reach £10.3bn. In addition, it’s seeking to add value for shareholders via a £1.6bn share buyback programme.
There’s much to cheer in these numbers and, as an investor who prioritises passive income streams, the 4.4% dividend yield also looks tempting.
What’s more, for the time being, the bank has seen off an unwelcome restructuring proposal that previously clouded the outlook for further growth.
Chinese investor Ping An Asset Management owns an 8% stake in HSBC. It had been pushing for a spin-off of the bank’s Asian operations for quite some time, but the plan was rejected by shareholders at last week’s AGM.
Should I buy?
Alongside other bank stocks, HSBC isn’t risk-free. The prospect of global housing market slowdowns, a possible increase in bad loans, and potential financial contagion from the ongoing crisis gripping medium-sized US lenders are all concerns.
However, recent results have been very promising and the business is well-capitalised with a CET1 ratio of 14.7%. Although the wider banking sector may be facing difficulties, I think there’s a good chance HSBC could be a shining light in the darkness.
If I had spare cash, I’d invest today.
