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Dividend stocks come in all shapes and sizes, each offering the potential to create or boost a second income. Here, I’ll highlight a FTSE 100 blue chip and FTSE 250 investment trust that I think could do the trick.
First up is HSBC (LSE:HSBA). The Asia-focused bank has been in the news this week because it demonstrated the world’s first-known quantum-enabled algorithmic trading with US tech giant IBM.
The quantum computer helped solve a real-world problem in bond trading, delivering up to a 34% improvement over standard methods in predicting how likely a trade would be filled at a quoted price.
Philip Intallura, HSBC Group Head of Quantum Technologies, commented: “We have been relentlessly focused on the near-term application of quantum technology, and… we have great confidence we are on the cusp of a new frontier of computing in financial services.”
Of course, this quantum stuff won’t move the needle in the near term, but it highlights how the firm is focused on innovation in the financial industry. And the stock got a little boost, putting it within a whisker of another all-time high.
The share price has now surged 265% in the past five years, excluding dividends.
Despite this rise, HSBC still appears to offer value. It’s trading at less than 10 times forecast earnings while sporting a 5.1% forward-looking dividend yield.
As for risks, there might be some economic volatility ahead, with significant uncertainty remaining over tariffs and trade. Any downturn across Asia would be bad for HSBC’s near-term growth, as the majority of the bank’s profits are sourced from the region.
Longer term, however, HSBC’s growth prospects remain undimmed. Asia is still tipped to drive the bulk of global economy growth, with a booming middle class that will need more banking and wealth management services.
Mid-cap trust
Sticking with Asia, the same opportunities apply to Schroder Oriental Income Fund (LSE:SOI). This FTSE 250 trust manages a ‘best ideas’ portfolio of 60-80 names.
Unlike the UK, Asia Pacific is not often associated with dividends. Yet, as the fund points out, it has “upped its game in the dividend stakes in recent years“.
Indeed, the MSCI All Countries Pacific excluding Japan Index has roughly yielded the same as UK indexes in recent years.
Top holdings here include Taiwan Semiconductor Manufacturing (TSMC), Singapore Telecommunications, and Samsung Electronics. As the world’s largest chip foundry, TSMC is booming right now due to incredible demand for AI chips.
Of course, the fact that the trust is invested across economies as varied as China, Australia, Taiwan, and Korea adds currency risk. It could lose value as a result of wild movements in foreign exchange rates.
Also, I don’t expect the growth trajectory in Asia to be smooth. There will be various ups and downs along the way.
But the region has a massive population and consumer base. And it’s producing an increasing number of world-leading companies (BYD, CATL, ByteDance/TikTok, TSMC, etc). I expect this trend to increase in future, along with investor interest in Asian equites.
The Schroder Oriental Income Fund has a good long-term track record (19 consecutive years of dividend growth). With the yield currently near 4%, I reckon the stock is worth considering for its long-term income potential.
