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

By David O’Hara - Apr 9, 2013 at 2:40PM

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BP, Rio Tinto, and HSBC all offer a large dividend yield and trade on a low P/E.

BP (BP 1.00%) (BP 0.90%)
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 (RIO 1.90%)
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 (HSBA 0.46%) (HSBC 0.31%)
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.

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Stocks Mentioned

BP p.l.c. Stock Quote
BP p.l.c.
$427.85 (1.00%) $4.25
HSBC Holdings plc Stock Quote
HSBC Holdings plc
$521.30 (0.46%) $2.40
Rio Tinto plc Stock Quote
Rio Tinto plc
$5,646.00 (1.90%) $105.00
BP p.l.c. Stock Quote
BP p.l.c.
$32.37 (0.90%) $0.29
HSBC Holdings plc Stock Quote
HSBC Holdings plc
$32.82 (0.31%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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