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3 More Blue-Chip Bargains: BP, Rio Tinto, and HSBC

BP (LSE: BP  ) (NYSE: BP  )
BP is striving to put the Gulf of Mexico disaster behind it. Yet as the company passes one milestone, another appears on the horizon. The current challenge for the company is in a Louisiana courtroom. BP and its partners in the ill-fated well are each seeking to demonstrate to a judge that they do not deserve to receive huge fines.

Provided that BP can afford to pay any resulting fine out of current budgets, then the shares should still pay a dividend of about $0.36 this year. At today's share price, that equates to a yield of 5.3%. Though some investors may be worrying about the recent decline in the oil price, it's worth remembering that there has historically been little correlation between the price of crude oil and BP shares.

Rio Tinto (LSE: RIO  )
Shares in mining companies have fallen recently on fears for the global economy. And Rio Tinto has suffered along with the rest, its shares losing 17% in the last three months. This fall means that the shares have moved into value territory. Rio shares now trade on 9.4 times 2012 profits. Two years of forecast earnings growth mean Rio is available on a 2014 price-to-earnings ratio of just 6.7. There is also a well-covered dividend that is expected to continue growing.

Like all resources companies, Rio Tinto has no control over the price of its products. Although the market is showing concerns over future profitability, the credible prospect of a 4% dividend this year should provide some comfort to buyers.

HSBC is the U.K.'s biggest bank. The company's size and diversity saw it weather the banking crisis much better than many of its peers.

In the last month, renewed fears over the health of the eurozone have knocked 8% off the HSBC share price. This pushes the shares toward bargain status. HSBC's shares today trade on 10.5 times consensus forecasts for 2013. The shareholder dividend is expected to be raised by about 12%, pushing the yield to 4.9%. Significant further growth is expected next year, meaning the 2014 P/E is just 9.3, with an anticipated yield of 5.4%.

HSBC will update the market with its Q1 trading statement on May 7.

Solid, dividend-paying blue chips like HSBC are the cornerstone of many value investors' portfolios. If you want more income-producing investment ideas, then check out what the best income fund manager in the business has been buying. Neil Woodford is manager of top-performing fund Invesco Perpetual Income. To help you learn from this master, we have prepared a free report: "8 Shares Held By Britain's Super Investor." To get your totally free copy, click here.

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  • Report this Comment On April 10, 2013, at 2:14 PM, markw707 wrote:

    You missed the main reason for HSBC's improvement over the past few months...

    As it has been reported, HSBC has been the go-to bank for terrorists and drug dealers for many years.

    The question that was hanging in the minds of many was: Can a company be the banker for groups who are at war or committing crimes in the country that the bank does business?

    Answer in the case of HSBC in the US: Yes.

    HSBC paid a fine and admitted to trading with the enemy, but there were no criminal penalties for any acts committed by HSBC execs.

    Thus, US Dept. Of Justice gave the green light to HSBC's questionable activities, and to all others considering engaging in these activities.

    Net result: HSBC's value rising rapidly.

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