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Lloyds (LSE: LLOY) shares are very popular with many UK income investors, and it’s not difficult to see why. The FTSE 100 bank is a household name, easily recognised by its iconic black horse logo, and holds a leading position in the UK mortgage market.
Millions of UK homeowners are already paying back loans to Lloyds – or its subsidiary Halifax – every month, so it makes sense for them to invest in what they feel familiar with.
In recent times, this faith has been massively rewarded. The Lloyds share price is up 150% in five years, not including the regular dividends.
I did own some Lloyds shares a while back, but I sold them to double down on larger rival HSBC (LSE: HSBA). Here’s why I continue to prefer the latter’s shares for any top-ups over the long term.
Global diversification
Whereas Lloyds is focused solely on the UK, HSBC is a global banking giant. It operates in around 58 countries and territories, spanning Asia, Europe, North America, South America, the Middle East and Africa. It specialises in retail, wealth, corporate, and investment banking.
Consequently, less than a fifth of revenue is sourced domestically, with the vast bulk coming from Asia and around 6.4% from the US.
Naturally, these sprawling operations can be complex and present challenges. The firm can run into regulatory or sector problems, as it did with the Chinese property meltdown in recent years. Depending on the severity, this can result in massive write-downs and losses.
That said, Lloyds has weathered its fair share of storms over the past 20 years, both self-inflicted (the PPI scandal) and systemic (the global financial crisis).
Right now, the bank is facing another possible sticky situation in the shape of the alleged mis-selling of motor finance (through its Black Horse finance arm). In February, it set aside another £700m for this, bringing the total for potential payouts to £1.2bn.
There’s a risk it could be higher, but we currently don’t know how all this will end.
Focus on growth in Asia
On balance, I prefer the global diversification that HSBC offers, especially across Asia. China’s Ping An, which is a major HSBC shareholder, has been encouraging this pivot eastwards.
This makes sense, as the region offers higher long-term growth potential than Western markets. Just look at India, which is on track to become the world’s third-largest economy by 2027, just behind China.
Meanwhile, Vietnam is Southeast Asia’s top-performing economy, and likely to remain a key global manufacturing hub long after President Trump (and his tariffs).
The combination of proactive fiscal policies, structural reforms, and rising domestic consumption is expected to support long-term growth across the region.
HSBC.
Dividend yield
Finally, I like that HSBC’s forecast dividend yield is higher at 5.5% than Lloyds’ (4.6%). There’s also more chance that HSBC dishes out special dividends in future, given that it has more global assets that it could sell off.
Of course, payouts aren’t guaranteed from either, and there’s not much to separate them in terms of valuation. So I’m not saying Lloyds isn’t worth considering (I think both are for income).
But on balance, I think HSBC has greater earnings and dividend growth over the long term. So it’s the one I’ve plumped for in my Stocks and Shares ISA.
