Q3 lifts optimism for HSBC dividend

LONDON (Reuters) - HSBC's (HSBA.L) upbeat earnings guidance this week has lifted optimism Europe's biggest bank could pay a higher-than-expected 2009 dividend, at a time of scarce payouts for investors from the financial sector.

HSBC shares were up 1.7 percent at 745 pence, outpacing a 0.2 percent rise in the DJ Stoxx Europe bank index .SX7P, which several traders attributed to talk of a higher payout.

HSBC slashed its dividend in the last year as earnings have been hit by hefty losses in United States, and its share count was also swelled after it raised 12.8 billion pounds in a record rights issue in March to shore up its capital.

The bank on Tuesday said underlying third-quarter profits were "significantly ahead" of a year ago, unveiling its first improvement for three years in U.S. bad debts.

It is expected to pay out 34 cents a share for 2009, according to Thomson Reuters I/B/E/S average of 22 analysts. Estimates range from 30 cents to 45 cents a share. The average forecast for 2010 is 37 cents a share.

This week's update prompted earnings upgrades and raised scope for a higher dividend, analysts said, although some said the bank should remain cautious.

"It would make sense for them to rebuild cover a little bit before they got aggressive on the dividend front," said Simon Willis, analyst at NCB Stockbrokers. He estimated the 2009 payout will be 32 cents per share.

"They are in a position to do more if they choose, but it would be prudent for them to stay with that for this year and edge it up next year," Willis added.

A spokesman for HSBC said the bank maintained a "progressive" dividend and the variable final dividend will be announced with full-year results in March.

HSBC has paid three quarterly dividends of 8 U.S. cents a share this year. It cut its final 2008 dividend to 10 cents as the financial crisis hit, limiting the ful-year payout to 64 cents, down from 90 cents for 2007 and its first dividend drop for over 15 years.

The bank has paid out $4.2 billion (2.5 billion pounds) in dividends this year, and capital generation comfortably exceeded dividends in each quarter, it said on Tuesday.

HSBC has continued to pay a dividend during the financial crisis while many banks and other firms have scrapped payouts. In March the bank said investors wanted to keep a cash payout rather than a smaller rights issue, as a reliable income source.

Rival Barclays (BARC.L) this week said it would restart its dividend, paying 1 pence per share for the third quarter, and other firms are restoring payouts as prospects improve.

HSBC's dividend payout ratio this year is still likely to be above its traditional level of around 50 percent, as earnings remain depressed by the impact of U.S. losses.

Goldman Sachs analysts estimated the 2009 payout ratio will be 70 percent, based on its forecast for a 32-cent dividend, but will drop to 52 percent next year even based on a 40-cent payout, as underlying earnings rebound.

HSBC shares would yield just under 3 percent based on current payout expectations. Many shareholders opt to take the dividend in shares, with the scrip take-up often over 30 percent.

(Reporting by Steve Slater, David Brett and Dominic Lau)