8.3% dividend yields! A dirt-cheap FTSE 100 stock I’d buy for long-term passive income

_{Editor’s note: data taken from MarketScreener.com.}

I’m looking for the best dividend stocks to buy for my portfolio before the Stocks and Shares ISA deadline this week. And I think HSBC Holdings (LSE:HSBA) is perhaps one of the most attractive FTSE 100 Bargain stocks to buy now.

Today the blue-chip bank trades at a forward price-to-earnings (P/E) ratio of 5.5 times. It also trades at a forward price-to-earnings growth (PEG) ratio of 0.1, based on projections that earnings will rise 69% in 2023.

Any reading below indicates that the stock is undervalued.

On top of this, HSBC’s current share price carries a large prospective 8.3% dividend yield. But what is the risk of investing in a bank making FTSE 100 shares to avoid?

Risk

Profits at banking businesses like HSBC are at great risk as inflationary pressures ease.

Why? Because central banks keep rates higher during periods of significant price increases. And the higher the interest rate, the more money the retail banks spend on lending activities.

This week Silvana Tenreyro – who sits on the Bank of England’s Monetary Policy Committee – said the current benchmark rate could “requiring an earlier and faster reversal” is a growing sign that inflation may fall below policymakers’ targets.

Speculation is growing that central banks around the world may cut rates faster than expected due to inflation. The appetite for cuts could be strengthened if the global economy struggles for momentum.

Higher rates helped HSBC’s net interest margin (NIM) rise by more than a quarter of a percentage point in 2022, to 1.48%. NIM measures the difference between the interest banks charge borrowers and what they offer to savers. This led to a 4% higher profit to $51.7bn.

Lower rates pose a threat to HSBC and its peers’ ability to grow profits in the near term. But I still believe the potentially explosive benefits of buying a FTSE 100 bank outweigh the risk of sharper-than-expected interest rate rises.

Reward

More specifically, I think HSBC’s pivot to Asia could generate long-term returns for investors.

The business is reducing exposure to slower-growing regions as it turbocharges investments in growing regions. The latest move in November saw the sale of its Canadian operations for $10.1bn in a move that will give it more financial leverage for expansion in Asia.

It has pledged to spend $6 billion over the next five years to expand its operations in China, Hong Kong, and Singapore. The move to expand its presence in areas like wealth management could prove very profitable as wealth levels in Asia boom.

The financial services giant BBVA considering that the continent will be responsible for 65% of the global economic growth in 2027. Despite the problem of rising competition, HSBC can make a very good profit against this background. It should have the financial firepower and brand power to make the most of this opportunity.

If I had the money to invest, I would want to add HSBC shares to my portfolio.