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5 Shares for 2013

LONDON -- 2012 has been a decent year for the FTSE 100 (UKX). So far this year, the index has risen 7.1%. That's in line with the long-term average return on equities.

I've looked through the FTSE 100 to find five shares that I expect will have a great 2013. I make no apologies for the list being top-heavy with banks; I believe the sector will do well.

Company Price (pence) P/E (forecast) Yield (forecast, %) Market Cap
BP  (LSE: BP  ) 430 7.3 5.4 81,780
HSBC  (LSE: HSBA  ) 650 11.6 4.2 120,260
Lloyds Banking  (LSE: LLOY  ) 49 19.8 0.0 34,780
Royal Bank of Scotland  (LSE: RBS  ) 318 17.3 0.0 35,930
Royal Dutch Shell  (LSE: RDSB  ) 2,200 8.4 4.9 137,850

1. Royal Bank of Scotland (RBS)
RBS is the recovery play that trumps all other recovery plays. At the worst of the financial crisis, Royal Bank of Scotland came within hours of going broke. A taypayer bailout rescued the bank; in doing so, the government became RBS' biggest shareholder.

RBS shares have already have a great 2012. Since the beginning of the year, they are up 57.7%. The rise has been assisted by the political response to the eurozone panic. This has helped bring calm to the markets following the panic at the start of the year.

Before the eurozone crisis came to the fore, RBS traded significantly higher than they do today. For over a year from March 2010, shares in RBS spent almost every day trading over 400 pence. The shares even traded over 500 pence for a few weeks in April 2010.

If the markets can move on from the eurozone, I expect RBS shares will end 2013 considerably higher than they are today.

2. Lloyds Banking
Lloyds is the best-performing share in the FTSE 100 for 2012. So far this year, the shares are up 91.6%. This momentum shows no signs of petering out. In the last month, Lloyds is up 9.6%; today, the shares stand at their highest since July 2011.

Like RBS, the U.K. taxpayer also owns a substantial stake in Lloyds. The crucial difference is that the government's stake in Lloyds is a minority.

Though rises in 2012 have been significant, the taxpayer is still well down on its Lloyds investment. The shares would have to rise another 50% for the government to break even.

Lloyds is expected to report 2.5 pence of earnings per share (EPS) for 2012, rising to 3.8 pence in 2013.

Unlike RBS and Lloyds, the government has no stake in HSBC. There is much less risk associated with the shares. As a result, HSBC's price is less volatile and trades at a more normal rating.

HSBC is expected to report EPS of $0.92 for 2012, rising to $1.02 of earnings in 2013. This means that the shares trade on a 2012 price-to-earnings (P/E) ratio of 11.6 times forecast earnings, falling to 10.4 times for 2013.

I am starting to believe again that bank shares deserve high ratings. In all but the most exceptional circumstances, they are resilient businesses. Take HSBC. The bank was paying out dividends throughout the worst of the crisis. The bank has not reported a loss in any of the last five years, despite incurring some large writedowns. HSBC is stronger than most other businesses.

HSBC is expected to yield 4.2% this year, rising to 4.6% for 2013.

4. BP
BP's recovery from the 2010 Gulf of Mexico disaster continues. With much of the litigation and claims already dealt with, BP is close to putting the incident behind it.

The shares currently trade on just 7.3 times 2012 EPS estimates, falling to 7.2 times the 2013 number. As you might expect for a share trading on such a low rating, the dividend yield is high. BP is forecast to pay a total of $0.38 per share in dividends for 2012, rising to $0.42 for 2013. This means that at today's price, the shares come with a 2013 dividend yield of 6%.

BP's new Russian deal with Rosneft could transform the company. If dividends can increase to the level they were before the disaster in the Gulf, BP shares would yield 8.2%.

5. Royal Dutch Shell (Shell)
Shell is the FTSE 100's dividend daddy. In 2011, Shell paid out more to its shareholders than any other FTSE 100 stock. This amounted to 1 pound in every 8 pounds paid buy FTSE 100 shares. This integrated oil major is little short of a money-making machine.

For 2012, Shell is expected to dish out a total of $1.76 of dividends. For 2013, this is expected to rise to $1.80. Shell has not cut a dividend since the end of the World War II. It is not only a great U.K. dividend share, it is one of the best income stocks on the planet.

Shell is also attractive on a P/E basis. Analysts expect EPS for next year to hit $4.45, putting the shares on a 2013 P/E of just 8.1.

Top fund manager Neil Woodford has made massive amounts for his investors by managing a portfolio of big dividend payers. If you want to see where he has been putting his clients' money recently then check out this free Motley Fool report "8 Shares Held by Britain's Super Investor." The report details just how this top investor plans to keep beating the market. Click here to start reading today.

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