The FTSE 100 index is stuffed with high-yield dividend shares. However not all are price shopping for – many have been poor long-term investments.

Beneath, I’m going to focus on my prime choose among the many Footsie’s 20 highest yielders. Right here’s why I feel this inventory is price contemplating for a portfolio right now.

A horny long-term outlook

Of the 20 highest yielders within the FTSE 100 right now, my favorite inventory is banking big HSBC (LSE: HSBA). It presently has a dividend yield of round 6.4%.

There are a number of causes I’m bullish on this explicit inventory. It’s not simply the engaging yield that stands out to me.

One is that the corporate has real long-term progress potential. With its deal with Asia and wealth administration, this financial institution has the potential to get a lot larger over the following decade.

It’s price noting that long-term progress potential is commonly ignored by dividend traders (who can get caught up in excessive yields). It’s actually essential, nevertheless.

Sometimes, enterprise progress results in larger earnings. And this helps dividends for traders (and infrequently results in elevated payouts).

In recent times, we’ve seen many excessive yielders reduce their dividends on account of a scarcity of progress. Some examples right here embody BP and Imperial Manufacturers.

Safe dividends

One more reason I just like the look of the inventory is that the dividend seems to be safe.

This yr, analysts count on whole dividend funds of 67 cents per share from HSBC. In the meantime, they count on the financial institution to generate earnings per share of 133 cents.

That provides us a dividend protection ratio (earnings per share divided by dividends per share) of about two. That’s a stable ratio and signifies that earnings ought to comfortably cowl dividends.

I’ll level that not many excessive yielders within the FTSE 100 presently have this stage of protection. Proper now, Authorized & Common has a dividend protection ratio of simply 1.1 whereas Taylor Wimpey has a ratio of 0.95 (a ratio beneath one is a crimson flag because it reveals that earnings aren’t protecting dividends).

There are at all times dangers

In fact, dividends are by no means assured. And we will’t rule out a state of affairs through which HSBC reduces its payout to traders sooner or later.

In spite of everything, banking is a cyclical business (which means that it has its ups and downs). Sooner or later, a significant world recession (or extra remoted financial weak spot) might result in decrease earnings for the group and decrease dividends.

And that’s not the one threat to contemplate with this inventory. Whereas Asia and wealth administration seem to supply potential for progress, the banking business is prone to disruption.

Immediately, digital banks and FinTech start-ups are aggressively attempting to seize market share from legacy banks. So HSBC must innovate and be certain that it might probably supply prospects a first-class digital expertise.

Value a glance

Total although, I feel this inventory – which trades on a price-to-earnings (P/E) ratio of simply eight – seems to be engaging right now. With its long-term progress potential and its 6.4% yield, I imagine it’s price contemplating.