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How BHP Billiton plc Will Deliver Its Dividend

I’m looking at some of your favourite FTSE 100 companies and examining how each will deliver their dividends.

Today, I’m putting BHP Billiton plc (LSE: BLT) (NYSE: BBL.US) under the microscope.

Dividend policy

The directors of BHP Billiton tell us:

“BHP Billiton has a progressive dividend policy. The aim of this policy is to steadily increase, or at least maintain the dividend in US dollars at each half-yearly payment”.

The dividend is set in US dollars because the company’s financial reports — as with miners in general — are compiled in that currency. Therefore, due to exchange rates, there is some variability in income growth rates for UK investors who take their dividends in sterling. Sometimes exchange rates work in favour of UK investors, and sometimes against.

When it comes to judging the dividend policy, though, we have to look at the performance of the dollar dividend.

Past dividend performance

The table below shows BHP Billiton’s dividend record over the past 10 years.

Year end
(30 June)
Dividend
per share ($)
Growth (%)
2012 1.12 10.9
2011 1.01 16.1
2010 0.87 6.1
2009 0.82 17.1
2008 0.70 48.9
2007 0.47 30.6
2006 0.36 28.6
2005 0.28 55.6
2004 0.18 16.1
2003 0.155 14.8

As you can see, BHP Billiton has an excellent dividend record. The company not only delivered sky-high increases through the boom years of the mid-Noughties, but also continued to raise the dividend at a good clip through the global financial crisis and economic downturn of 2008/9.

BHP Billiton’s record is actually unique among its big FTSE 100 sector peers: Anglo American, Rio Tinto and Xstrata (now Glencore Xstrata) all slashed their dividends during 2008/9. BHP Billiton’s resilience reflects the fact that it is the most diversified miner on the block.

Dividend prospects

The past 12 months have been tough for miners generally, and analysts expect BHP Billiton’s earnings to fall around 30% when the company announces its results next month for the year ended 30 June.

Nevertheless, BHP Billiton lifted its interim dividend by 3.6%, and if the final dividend is increased by the same order, analyst forecasts suggests the year’s payout will be twice covered by earnings. For the year to June 2014, the analysts expect to see a return to double-digit earnings and dividend growth.

To sum up, BHP Billiton has been a great share for dividend investors: the group’s diversification and dividend record put its rivals to shame, and good dividend growth is forecast to continue. Furthermore, you can currently buy into all this with a starting income of over 4% compared with the FTSE 100 average of 3.3%.

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> G A Chester does not own any shares mentioned in this article.