BHP Billiton Plc’s Greatest Strengths

Two standout factors supporting an investment in BHP Billiton plc (LON: BLT)

| 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.

When I think of resources giant BHP Billiton (LSE: BLT) (NYSE: BBL.US), two factors jump out at me as the firm’s greatest strengths and top the list of what makes the company  attractive as an investment proposition.

1) Focused operations

Investors often cite diversification as a major attraction of big resources companies such as BHP Billiton. The theory goes that pricing and other risks can be mitigated by running a wide spread of operations across several commodities and in many different regions. That’s a fine theory, but in practice, companies often excel by concentrating and focusing operations across a smaller product range and in targeted markets.

So, there’s a balance to be struck and BHP Billiton reckons it has been simplifying its portfolio for several years. Since the end of 2011 alone, the firm has committed to or completed divestments in Australia, the United States, Canada, South Africa and the United Kingdom. Those sales mean it’s out with assets involved in petroleum, copper, coal, mineral sands, uranium and diamonds.

The directors’ rationale for such pruning is that a focus on what they call the four pillars of iron ore, copper, coal and petroleum assets will retain the benefits of diversification whilst also generating strong free cash flow. Digging out costs and ratcheting up efficiencies by chopping peripheral activities should deliver a shot at achieving superior returns on the firm’s capital investment. The company is keeping its options open with regard to adopting potash as a fifth pillar.

I think today’s competitive world demands lean, mean, focused operating businesses and that large unwieldy enterprises will find their economics increasingly challenged. BHP Billiton’s commitment to change and improvement is encouraging.

BHP Billiton2) Rising productivity

The firm’s strategy seems to be delivering. Recent half-year results reported a 31% rise in underlying profit thanks to a focus on costs and what the directors describe as a substantial increase in productivity.

Productivity gains seem set to continue. Billiton reckons global economic conditions improved during its December 2013 half year. Looking forward, the directors reckon the balance of risk to global growth is skewed to the upside as indicated by a broad-based alignment of macroeconomic indicators in the major developed economies. That sounds about as positive as it gets. It’s always worth listening to the big mining companies’ forecasts; after all, they are working at both the literal and metaphorical coalfaces and feel the macro-economic pulse most keenly. 

What now?

The directors recently hiked the dividend by 3.5% and new investors will enjoy a forward yield predicted to be around 4.1% at current share-price levels.

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.

Kevin does not own shares in BHP Billiton.

More on Investing Articles

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Growth Shares

I bought 319 Scottish Mortgage shares for my SIPP in January. Here’s how they’ve done

Scottish Mortgage shares were out of favour in January so Edward Sheldon bought more of them for his pension. Was…

Read more »

Investing Articles

Is Tesco’s share price still a bargain after rising 26% over a year?

Recent results show Tesco is still growing its leading market share, and despite its share price gains this year, it…

Read more »

Investing Articles

Is this FTSE 250 gem the next big thing in defence sector shares?

This FTSE 250 defence firm was founded by the MoD, has seen its order book and profits swell, and is…

Read more »

Investing Articles

Here’s what the National Grid share price fall could mean for passive income investors

It's long been seen as one of the FTSE 100's best stocks for durable dividends. What does the recent National…

Read more »

Female florist with Down's syndrome working in small business
Investing Articles

£6,000 in savings? Here’s how I’d try to turn that into a £500 monthly passive income

With careful planning and patience, it’s not hard to earn a passive income with UK shares. Here’s one way to…

Read more »

Investing Articles

Here’s how I’d aim for a second income of £1,000 a month, with just £10 a day

How much do we need to build a decent second income? With enough time, we could do it with a…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Down 12% in a month, is this the FTSE 250’s most overlooked gem?

Our author thinks Kainos is one of the most overlooked FTSE 250 gems. Here's why he thinks the future could…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Just released: our 3 best dividend-focused stocks to consider buying before July [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »