What Dividend Hunters Need To Know About BHP Billiton plc

Royston Wild looks at whether BHP Billiton plc (LON: BLT) is an attractive income stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at whether BHP Billiton (LSE: BLT) (NYSE: BBL.US) is an appealing pick for those seeking chunky dividend income.

A dedicated dividend play

Although BHP Billiton has seen earnings fluctuate wildly since fiscal 2009 — the firm has punched heavy earnings falls in three of the past five years — it has remained committed to lifting the full-year dividend during this time. Indeed, the company raised the dividend for the year concluding June 2013 by 3.6%, to 116 US cents, even as earnings rattled 31% lower.

And City brokers expect the company to maintain its progressive dividend programme during the medium term at least. Current BHP Billitonforecasts point to a 6.2% rise for 2014, to 123.2 US cents, with an additional 4.4% increase anticipated next year to 128.6 cents.

These projections create meaty yields of 3.8% and 4% for 2014 and 2015 respectively, far ahead of the FTSE 100 forward average of 3.2%.

Commodity markets set to remain fragile

And City forecasters expect a solid earnings turnaround to support dividend growth. Forecasts point to a robust 21% earnings improvement this year, in turn providing dividend coverage of 2.2 times prospective earnings, comfortably within the widely regarded security benchmark above 2 times. Although earnings are expected to stagnate in 2015, dividend coverage still registers at a healthy 2.1 times.

Against this backdrop of sustained revenues pressure, BHP Billiton is significantly scaling back capital expenditure — the firm is on course to cut capital and exploration spend by 25% this year alone, it advised last month — as well as divesting non-core assets and initiating a massive expense-slashing drive. Indeed, the business is aiming to raise volume and cost efficiencies to $5.5bn for 2014, up from $4.9bn last year.

Although BHP Billiton has been hugely successful in installing cost-discipline across the group, the prospect of declining commodity prices raise fears over whether the firm can keep dividends rolling higher over the long-term, particularly as the firm’s cash pile is deteriorating rapidly.

Indeed, a backcloth of oversupply across many of BHP Billiton’s commodity markets looks set to keep the dampeners on prices, with the rate of new capacity hitting the market predicted to swamp supply.

For iron ore in particular — from where the mining giant sources more than half of all profits — Bank of America-Merrill Lynch expects prices to fall from $135 per tonne to $110 this year, before slumping to $105 and $100 in 2015 and 2016 respectively.

Given this worrying price picture, I believe that BHP Billiton could find it increasingly difficult to keep earnings ticking solidly higher in coming years, and with it shareholder payouts.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston does not own shares in BHP Billiton.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »