6.7% yield! Here is HSBC's dividend forecast until 2026

HSBC (LSE:HSBA) shares are currently among the best performing stocks in FTSE 100. It paid a dividend of 6.7% per share last term and the stock's annual yield

However, the benefits are not guaranteed, so it is not guaranteed that it will continue to make this payment. But predictions can help us assess its future prospects.

Budget forecast

The table shows analysts' forecasts for HSBC shares until 2026.

At first glance, it may seem that the bank's dividend forecast does not look good.

But this does not tell the whole story. It's easy to believe that the company will significantly reduce its payout next year, as we see a 24% drop in profits. However, this ignores a special dividend of 21c declared at the end of April which was issued as a result of the sale of its Canadian business.

That's why the 2024 yield of 9.3% in the table above is higher than the headline yield of 6.7%. It includes special dividends, while 6.7% is calculated by taking all amounts paid in the last four quarters under the special dividend.

Excluding this, the expected dividend in 2024 is just 63.24c, 3.7% above the 61c paid in 2023, and still up 0.9% to reach the expected 2025 63.8c. Therefore, we can see regular quarterly profits still growing over time.

Dividend opportunity

Now, if I were to invest £10,000 in their shares, I would buy 1,438 of them at their current price of £6.95.

Using the last four quarters as the basis of my calculations and ignoring special dividends the earnings per share is 48.22p (after finding the best fit on the HSBC website).

So, my £10,000 investment will make me £693.34 a year.

With a 7.04% yield in 2025, my income from the investment will increase to £704 that year. Then in 2026, it looks set to rise again, to £723, based on a 7.23% yield. This is without further investment after my first spend.

Let's take a look at the company's dividend growth rates between 2020 and 2023 below:

In 2020, there were huge budget cuts, caused by the pandemic. However, the dividend has been increased every year.

This is predicted to slow down between 2024 and 2026. But we can see HSBC has a strong track record of increasing profits.

I'm going to be very conservative and assume that the annual growth rate in the dividend is only 2% going forward. Ten years from 2026, my annual receipt from HSBC will be £881.33. In 20 years, it will be £1,074.34.

If I could reinvest my earnings or make a monthly investment in its shares, I could speed up this process and make more.

So what?

It is important to remember that there are risks with HSBC shares. It has high exposure to the Chinese economy, which is currently struggling. As interest rates fall, its net interest income may decline, which could hurt profits. But as an income opportunity, I think its shares should be considered.