Mega-cap miner BHP Billiton hikes its dividend by 20% as cash pours into it.
So far, this is been a great week for dividend devotees and income-seeking investors.
First, oil behemoth BP (LSE: BP) raised its quarterly dividend by 14% to eight US cents per share. This is BP's first dividend increase since the disastrous oil spill in the Gulf of Mexico in April 2010.
Second, pharmaceutical giant GlaxoSmithKline (LSE: GSK) lifted its final quarterly dividend to 21p (up 11%), as well as adding a one-off special dividend of 5p.
Fancy a tasty BLT?
The third FTSE 100 firm to pump up its cash payout this week is BHP Billiton (LSE: BLT), which released its half-year results this morning.
In the second half of 2011, the mega-miner saw revenues rise by almost a tenth (9.7%) to nearly $37.5 billion. This caused underlying EBIT (earnings before interest and tax) to climb nearly 6% to $15.7 billion. However, profit attributable to shareholders slipped by 5.5% to just short of $10 billion.
Thus, basic earnings per share (EPS) dipped 1.3% to $1.87, yet operating cash flow crept up by 0.7% to nearly $12.3 billion. This huge flood of cash allowed BHP to hike its interim dividend to 55 cents a share, up nearly a fifth (19.6%), which is sure to delight its owners.
Net debt soars
With its strong franchise, rock-solid balance sheet and 'A' credit rating, BHP Billiton has been borrowing billions to invest. Last year's acquisitions included the successful purchase of oil and gas company Petrohawk Energy Corporation for $12 billion in August.
As a result, net debt almost quadrupled from $5.9 billion at 30 June 2011 to $21.5 billion six months later, up 264%. However, this leaves BHP with a net gearing ratio of just 25%, which is well within the company's comfort margin.
Valuation
BHP makes half of its profits from mining iron ore, so it is extremely exposed to demand for steel, particularly in emerging-market economies such as China. What's more, the rare fall in profits announced today is largely due to falls in the price of iron ore, copper and coal in recent months.
Despite weakening global demand for base metals and the ongoing crisis in the euro zone, BHP Billiton remains one of the world's most powerful companies. Indeed, it intends to invest $80 billion by 2015 to expand its operations.
As I write, the share price of the Anglo-Australian mining giant is up 7.5p at 2,187.5p. This values the group at £130 billion. At this price, BHP Billiton's shares trade on a forward price-earnings ratio below nine and offer a prospective dividend yield of 3.2%, covered 3.5 times.
To me, these undemanding fundamentals suggest that this quality, world-leading business is going cheap.
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> Cliff owns shares in GlaxoSmithKline. The Motley Fool owns shares in GlaxoSmithKline and BHP Billiton.
