Macquarie Group Ltd (ASX: MQG), Rio Tinto Limited (ASX: RIO) and National Australia Bank Ltd (ASX: NAB) each offer investors juicy dividend yields and, what appears to be, a chance at buying an undervalued stock. But looks can be deceiving.
Here's what I think you can expect from these three blue-chips stocks in the near future and whether, or not, they're worthy of your investment dollars.
Macquarie Group
Macquarie is Australia's premier investment bank, but many of us probably wouldn't realise it. That's because the bank derives a majority (68%) of its revenues from overseas. Global exposure helped the bank grow earnings strongly in the past 24 months as world markets rallied. With an aggressive push into Australian mortgages, increasing funds under management and specialist knowledge in diverse finance areas, Macquarie's share price could trend higher from here.
Rio Tinto
As Australia's largest iron ore miner, Rio has been in-and-out of the media as the spot price of the steel-making ingredient fell from over $US135 per tonne at the beginning of 2014 to a low of $US91.80 last month. No doubt this will have a significant impact on Rio's revenues, despite increased production. Since Rio derived over 90% of FY13 underlying earnings from iron ore, I suggest investors adopt a wait-and-see approach until the miner releases its half-year results next month.
National Australia Bank
NAB pays the biggest dividend and trades on the lowest price-earnings ratio (13) and lowest price-book ratio (1.82) of any of the big banks. However NAB has struggled to grow revenues in the current low interest rate environment and has only increased cash earnings because of falling provisions for bad and doubtful debts. Despite this it forecast a 6% dividend, I think NAB is a 'Hold' at best.
A 7% grossed-up dividend AND Growth
Macquarie, with its generous 4.9% dividend and growing overseas earnings, appears the best buy. Of these three blue-chips however, Rio Tinto is the most appealing to me because there is a possibility it could surprise the market with a solid set of results in August, when it reports.
