Demand for HSBC (LSE:HSBA) shares among retail investors is surging right now. As a proud shareholder of the FTSE 100 stock myself, I must say I’m not surprised! Among AJ Bell customers, it was the third-most-purchased global share in the month to 29 May.

What’s especially attractive for me is the brilliant (and growing) flow of dividends the bank provides. Over the last five years, these have risen at a stunning average annual growth rate of 38%.

As a result, HSBC’s dividend yield in the last half a decade has averaged 6.5%. That’s miles above the FTSE 100 long-term average of 3%–4%.

You’ll see the bank’s dividend record is a little patchier before 2021 though. Disruption in 2020 was related to Covid-19 dividend restrictions by UK regulators rather than problems at the bank. Payout freezes before then reflected balance sheet strengthening following regulatory changes and a pivot to share buybacks.

But largely speaking, HSBC has built a reputation as a top dividend share. The question is, what makes it such a passive income powerhouse? And can it continue delivering rapid payout growth?

What’s behind it?

As a retail bank, HSBC provides essential banking services that provide reliable income streams. Its loans deliver interest, for instance, and its insurance products regular premiums it can use to pay dividends. In recent times, margins at its retail unit have benefitted from higher interest rates too, boosting profits and cash generation.

HSBC has advantages over some other FTSE 100 retail banks like Lloyds though. Its focus on fast-growing Asia has led to explosive profits growth that have also fuelled dividends. The company also has a huge wealth management division that generates fee-related income and has experienced rapid growth.

Finally, HSBC’s widescale restructuring of recent years has boosted its capital efficiency and earnings. Slashing costs, streamlining operations, and dumping underperforming units has unlocked extra cash flows it’s used to pay a rising dividend.

Can dividends keep growing?

With any stock, dividends are never guaranteed. And especially in the case of cyclical shares like banks. At HSBC, shareholder payouts could be frozen or even fall if its Asian markets experience economic downturns. The risk of this happening has grown in 2026 in light of the Iran War.

Yet on balance, I’m optimistic HSBC shares can keep delivering market-beating dividends. City analysts think payouts will keep growing, from 75 US cents last year to:

• 84 cents in 2026.
• 93 cents next year.
• 102 cents in 2028.

This suggests an average annual growth rate of 10.8% over three years. It also means HSBC carries a FTSE-100-beating yields ranging from 4.5% to 5.5%.

So why am I confident in these forecasts? Firstly, they’re well covered by expected earnings, with dividend cover sitting bang on the safety benchmark of two times or above. The bank’s CET 1 capital ratio is also an impressive 14%, providing an extra buffer if profits disappoint.

Should you invest £5,000 in HSBC Holdings right now?

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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if HSBC Holdings made the list?

Royston Wild owns shares in HSBC.