HSBC share price analysis: buy for the 7% dividend yield

on Jun 19, 2024
  • HSBC stock price has pulled back from its highest point this year.
  • A Swiss regulator ruled that HSBC was guilty of money laundering.
  • The Bank of England will deliver its interest rate decision on Thursday.

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HSBC (LON: HSBA) share price has been in the spotlight this week after a Swiss regulator ruled that its private bank violated money laundering rules. It then imposed some penalties, including an order to carry out AML reviews on its high-risk clients. 

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The new ruling comes over a decade after HSBC was handed a $1.9 billion fine for facilitating money laundering for Mexican cartels. It has also paid more fines in Europe and the US over the years.

The stock ignored the ruling and bounced back by 0.50%, ending the day at 686p, a few points above last week’s low of 670p. It has jumped by over 10% this year and has done better than some other British banks.

Bank of England’s decision ahead

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HSBC, like other British banks, will be in the spotlight this week as the focus shifts to the upcoming Bank of England (BoE) interest rate decision.

This decision will come a day after the UK published encouraging inflation data. The headline Consumer Price Index (CPI) rose by 0.3% MoM, missing the expected 0.4%. It also moved to the BoE’s target of 2.0%.

Therefore, the BoE will likely leave interest rates unchanged and point to a rate cut later this year. Such a cut will likely happen after the July election. 

HSBC, like other banks, does well in periods of high interest rates, which explains why it has boosted its returns to shareholders. In the most recent quarter, the company launched a $3 billion share buyback. It will then boost these returns to $8.8 billion in the near term.

HSBC’s business generated a profit before tax to $3.7 billion. This profit included a big impairment charge of its Argentinian business and the $4.8 billion gain in its Canadian business sale. 

These results also showed that its turnaround strategy has worked out well in the past few years. It has sold off its unprofitable businesses like France, the US, and Canada. It has also exited the highly unprofitable Argentinian business and shifted its focus to China.

HSBC faces numerous challenges ahead. Tensions between the US and China are not improving, which exposes it to sanctions by the US government. The recent stock surge has pushed its price-to-book ratio to 0.88, its highest level in five years.

Further, the company faces no major catalyst that will propel its growth ahead. A likely catalyst will be the new CEO who will replace Noel Quinn. Therefore, HSBC will continue being a good investment because of its high dividend yield of 7%, which is higher than most banks.

HSBC share price analysis

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HSBC share price

HSBC chart by TradingView

The daily chart reveals that the HSBA stock price has drifted upwards in the past few days. It has remained above the 50-day and 100-day moving average. Also, the shares have formed a falling wedge pattern while the accumulation/distribution indicator has continued rising.

Therefore, the stock’s outlook is bullish, with the next level to watch being the year-to-date high of 724.7p, higher than the current 686p. 

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