2 blue-chips I'd buy in the face of falling interest rates

Further iron ore price drops may spur on RBA rate cuts, so pick up stable dividend payers like Woolworths Limited (ASX:WOW) and Suncorp Group Ltd (ASX:SUN)

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An interest rate cut may come as soon as next Tuesday, brought on by this week's sinking of iron ore prices. On Monday, iron ore slipped under US$53 a tonne for the first time in about seven years. If it goes under US$50, some junior miners may be at their break-even points. The majors BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) will earn less as well.

Iron ore is Australia's biggest export, so when prices go down, less money flows in from outside the country and the economy slows down.

It may be enough to influence the RBA's decision to cut interest rates in April. Mortgage holders and share investors will rejoice once again, but people living off of bank account interest will have a bit less to smile about.

As I wrote earlier about interest rate cuts, more investors will be turning to stable income stocks like the blue-chips to secure a stable return on their money.

If I were trying to plan for my retirement, I would choose stable companies with good track records for dividend growth.

Among the blue chips, I'd pick up Suncorp Group Ltd (ASX: SUN). The insurer and banker is now offering a whopping 6.2% fully franked yield and the stock is trading at around 15x its forecast earnings. In recent years, the insurer has increased annual dividends as well as added on special dividends, so it has a stable history for dividend growth.

I think it also might be a good time to pick up some Woolworths Limited (ASX: WOW) as its stock is under pressure due to slowing earnings. It is starting a restructuring plan soon, but it will take some time before the financial benefits come. The stock could come down further before the company firms up. That might be an opportunity to start adding to your position when the stock is relatively cheaper. The stock pays a healthy 4.7% yield fully franked.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.  We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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