Should I Buy HSBC Holdings for My ISA?

LONDON -- U.K. banks have not covered themselves in glory during the last five years, and while HBSC Holdings  (LSE: HSBA  )   (NYSE: HSBC  )  has managed to remain profitable and avoided a bailout, a $1.9bn fine for money laundering last year was hardly the firm's proudest moment.

Despite the fine, I reckon HSBC is the best of the U.K. banks and has a lot to offer ISA investors interested in building up a diversified, tax-efficient portfolio (just click here for more details on the tax benefits of ISAs).

Emerging-market growth
HSBC describes itself as "the world's local bank," and for me, this is its main attraction. The majority of HSBC's business is in Asia, where growth rates remain high.

For example, the latest figures from China show the country's industrial production rose by 9.9% during the first two months of 2013, during which time retail sales rose by 12.3%. Yet both figures were lower than expected and were considered a mild disappointment by the markets!

That kind of growth is driving huge amounts of banking activity, and HSBC is positioned well to benefit, as its profits for 2011 and 2012 show:

Region 2012 Pre-Tax Profits 2011 Pre-Tax Profits
Europe -$3,414m $4,671m
Hong Kong & Asia-Pacific $18,030m $13,294
Middle East & N. Africa $1,350m $1,492m
North America $2,299m $100m
Latin America $2,384m $2,315m
Total $20,649m $21,872m

Source: HSBC company reports.

This year, HSBC's bumper Asian profits underpinned the losses it incurred in Europe and helped ensure that overall profits fell by just 6%.

Dividend boost
HSBC increased its dividend by 10% last year, taking its 2012 payout to 31.3 pence per share, equivalent to a dividend yield of 3.9%, at the bank's recent 730 pence share price.

Although HSBC's share price has risen by 30% during the last six months, to therefore reduce its dividend yield, the company remains the highest-yielding U.K. bank share, and its forward dividend yield of 4.3% still appears very attractive.

Invest globally with U.K. shares
I think the world's emerging markets are likely to continue to outgrow stagnant Western economies for many more years. I want exposure to this growth in my ISA portfolio, but I don't want the risk and complexity of owning foreign shares.

As one of the largest banks in the Asia-Pacific region, HSBC will be involved in funding and supporting much of the economic growth in those markets -- and will profit accordingly if things go well, as I expect them to.

By owning shares in HSBC, I enjoy direct exposure to these key growth markets, but I also benefit from the safety and simplicity of owning ISA-friendly shares in a FTSE 100 company that pays a solid dividend.

2013's top ISA income stock?
If you like the idea of using an ISA to hold high-yielding income shares, then I recommend you take a look at the Motley Fool's latest free report, "The Top ISA Income Stock for 2013."

The company in question offers a yield of 5.7%, and the Fool's expert analysts believe that its current share price of 700 pence could be 20% below its true value. To learn more, just click here to download your free copy of this special report, while it remains available.


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