It's out of favour with investors, but it's upping its dividend.
The diversified iron, coal and metals miner BHP Billiton (LSE: BLT) reported a 60% rise in pre-tax profits in annual results released Wednesday, which included record profits and record cash flow.
While acknowledging the impact that the banking and economic crises in the US and Europe will have on world growth, and accepting that it is at the mercy of global commodity prices, the company felt confident enough to lift its dividend by 22%, to $1.01 per share (approximately 61p), which is ahead of analysts' forecasts.
Basic earnings per share came in at $4.29 (£2.60), an 88% jump from a year ago, so this year's dividend is more than 4 times covered.
Record operating cash flow of $30bn enabled BHP Billiton to complete a $10bn share buyback programme ahead of schedule, though some investors will be disappointed not to read news of further buyback plans.
Commodity prices
Overall revenues rose by 36% for the year, to $72bn, thanks to strong prices for metals, coal, and oil. Some will fear that we're near the top of a commodity price cycle, especially with the West's economic troubles holding back demand, but demand from China and India is still going strong.
In fact, it was the growing pace of Chinese steel production that led the demand for iron ore, with output of that valuable rock reaching record levels for the eleventh consecutive year.
Coal, and other metals that Billiton unearths, including copper and aluminium, are also still in great demand and have seen their prices maintained.
Rising wages and energy prices are having a negative impact on profitability -- we are talking about shipping millions of tonnes of dirt around the globe here -- and that's likely to continue.
Developing economies
But with long term growth in China, India and other developing economies expected to continue strongly -- the Chinese economy is forecast to grow by between 7% and 9% next year -- I think you'd have to be a super pessimist on commodity prices to believe that the world's major miners are currently overpriced.
I've already opined that BHP Billiton shares are cheap, and at the current price of 1,907p (up 1% on the day so far), these figures give us a P/E of 7.3 and a dividend yield of 3.2%. I still think that's good value for a long term investment.
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