Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Is the BHP Billiton 7.9% dividend too good to be true?

By Ben Turney

27 August 2015 04:38

More:

On Tuesday, Chris Bailey offered some excellent analysis of BHP Billiton’s (BLT) results. I won’t attempt to steal Chris’ thunder, but one point he made has stuck with me. In its own words BHP Billiton’s board is “resolute” to pay what is now a 7.9% dividend. This is an enormous yield for such a large stock and if the directors follow through with this pledge, the current £10.55p share price is surely a gimme. The question is will the company pay this generous sum?

Already a member? Sign in

• All premium articles

• Tom Winnifrith’s Bearcast

• Access to all the entire nearly 13 year archive

• ShareProphets Daily Newsletter

Cancel any time

This area of the ShareProphets.com site is for independent financial commentary. These blogs are provided by independent authors via a common carrier platform and do not represent the opinions of ShareProphets.com. ShareProphets.com does not monitor, approve, endorse or exert editorial control over these articles and does not therefore accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at ShareProphets.com is for your general information and use and is not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by ShareProphets.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.

Comments

Jeremy

27 August 2015, 10:37

BHP’s present Interim & Final divi together cost it approx $6.5billion per annum.BHP seemed to have a net cash flow shortfall of about $2billion last year after all payments including two divi’s(2014/15 year final goes through the next years interim accounts).It will be cutting back on capital expenditure this year which will add to cash flow but it is highly unlikely it will be able to meet the divi payments this year out of cash flow as cash inflows will have declined.
The company has net cash on hand & the ability to borrow/further cut back on development expenditure etc but I would think it would be somewhat imprudent to stretch its finances & continue paying divi’s at this rate for longer than say another year unless commodity prices/profits looked likely to improve.
It could be argued that the shares are not dear at a tenner even on a reduced divi on the basis that “things” should get better & it would be impossible to replicate the business for its present valuation.
Ben Turney

27 August 2015, 14:08

@Jeremy – Thank you for putting more flesh to one of Chris’ points. It might well be financially imprudent to stretch finances to pay the dividend, but I imagine there are one or two BHP execs who have an eye on their next bonus packages.
However, as you say, at £10 there is a good argument for holding the shares, even if the dividend is reduced. I remain bearish on the prospects for iron and copper, going into 2016, but at some point both will come back. I like this stock more and more as a long term buy, despite where we are in the cycle of the main market