Finding the right stocks to buy remains firmly on investors’ minds even as the UK market approaches record highs. And according to the latest data from AJ Belltwo names that are attracting plenty of attention are HSBC Holdings (LSE:HSBA) and Rio Tinto (LSE:RIO).
Both offer attractive dividends alongside improving profits. But as experienced investors know, popularity doesn’t automatically make an investment worthwhile. So are these investments actually worth considering?
An Asian powerhouse
HSBC’s enormous Asian footprint gives investors exposure to expanding wealth and trade activity across some of the world’s fastest-growing markets. And that advantage shone through so far this year.
Across the first half, revenue climbed 11% to $37.7bn, while pre-tax profits surged 23% to $19.5bn. Moreover, when looking at the full-year guidance, net interest income’s on track to reach a minimum of $46bn. And since HSBC pays out 50% of final attributable profits to shareholders as dividends, the impressive trajectory of net interest income bodes well.
In other words, the dividend looks like it’s here to stay. And with the business as a whole outperforming, the latest analyst forecasts suggest the share price could also have some momentum left as well.
Yet like all investments, HSBC isn’t risk-free. Credit impairment charges have jumped to $2.4bn, partly due to weakened performance in Hong Kong commercial property, among other factors. And ongoing geopolitical tensions as well as China’s economic slowdown are only adding further uncertainty.
What about Rio Tinto?
Rio Tinto’s popularity is even easier to understand. Inflation and demand are driving up commodity prices. And favourable commodity prices alongside stronger production have sent first-half underlying earnings soaring 43% to $6.9bn!
In turn, free cash flow leapt 75% to $3.8bn, supporting a 43% dividend increase. But more importantly, the firm’s growing presence in copper, aluminium, and lithium projects is steadily reducing its historical dependence on iron ore.
In other words, Rio Tinto’s commodity concentration risk’s steadily falling. And when combining these price and volume-driven earnings with gains from the firm’s ongoing productivity programmes, it’s hard not to get a little excited about what’s on the horizon.
Of course, commodity prices won’t climb forever. Mining’s a notoriously cyclical sector. And management’s using the current ‘gold rush’ to accelerate and invest in new projects to offset eventual price declines through higher volumes. But all it takes are a few delays or cost overruns for this strategy to potentially backfire.
Source: uk.finance.yahoo.com
