Remember when big banks paid big dividends? Before the financial
crisis
Citigroup (
C
)
paid a quarterly dividend of $0.54; last quarter's dividend was
$0.01.
Bank of America (
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 (
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, 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 5.5% yield.
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 made 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.
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P.S. If you're looking to supercharge your income, you need to
learn more about Carla Pasternak's "High-Yield Stock of
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Disclosure: Tom Hutchinson does not own shares of any security
mentioned in this article.