HSBC's market sentiment method: take a good "dividend" (with 11 dividend stocks recommended) - Hong Kong Economic Times - Trend - Research Report

2023-05-26 08:05:40

China’s economic imbalance and rising geopolitics have put pressure on the outlook of companies, leading to heightened volatility in Hong Kong stocks. HSBC believes that under the current market conditions, investors should pay more attention to “dividend” stocks – “high-quality” quality “dividend” stocks, and screened out 11 dividend-paying stocks with a good record of stable dividends and future growth potential.

Although the economy in Mainland China is recovering, the pace is not smooth. For example, the labor market remains weak and there is no material turnaround in the housing sector. In fact, the latest data suggest that the housing sector may take longer to start new residential starts. And April’s credit growth was lower than expected data also exacerbated market concerns. In addition, it may take more time for an improvement in business and household sentiment to actually boost domestic demand.

HSBC pointed out that the current deployment of dividend stocks has three major advantages:

1. The strategy covers two main trends: falling interest rates and sustainable earnings growth. Markets expect the Federal Reserve to begin cutting interest rates soon, and lower U.S. bond yields in the coming months will make dividend stocks an alternative for investors.

2. The savings of mainland residents are transferred to buy dividend-earning stocks. Mainland banks have cut deposit rates, and mainland insurance companies will also cut product predetermined interest rates (PIR). With investment returns on time deposits and insurance products falling, HSBC expects some households to allocate capital to the point where they can provide stable and high return on investment in stocks.

3. Echoing the theme of state-owned enterprise reform. The state-owned enterprises listed in Hong Kong are mainly upstream companies such as energy, finance, and telecommunications, which are defensive.

The reason why it emphasizes “dividend” stocks rather than simply pursuing high dividends is because HSBC believes that from the perspective of interest rate spreads, stocks with stable dividends will perform better in an environment of declining yields than stocks that cannot pay high dividends every year. High dividend stocks are good.

As for why it is a “dividend” stock, HSBC listed the following conditions:

Market capitalization of $2 billion or more;

Able to ignore the interference of the epidemic, the amount of dividends has remained stable or increased since 2019;

Expected dividend yield of 6% or more over the next 12 months;

The dividend yield for the next 12 months is higher than the average for the past 3 years;

The market expects a higher or the same dividend per share in 2023 than last year.

Many of the stocks that meet these criteria belong to industries such as financials, real estate, communication services, and utilities. While some stocks have performed well recently, their dividend yields over the next 12 months are still higher than their average over the past three years, which HSBC believes has not yet been fully priced in.

Here are HSBC’s top 11 “dividend” stocks:

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