Is BHP Billiton plc A Better Income Stock Than SSE PLC And Intu Properties PLC?

Should you ditch SSE PLC (LON: SSE) and Intu Properties PLC (LON: INTU) in favour of BHP Billiton plc (LON: BLT) due to its dividend prospects?

| 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.

Earlier in the year, BHP Billiton (LSE: BLT) was one of the highest yielding stocks in the FTSE 100. This was partly because its share price had collapsed in response to a deteriorating outlook for the mining sector and also because the company’s management hadn’t yet followed many of its peers in cutting shareholder payouts. As such, BHP Billiton’s yield was perhaps artificially high.

Looking ahead, the diversified miner is forecast to reduce dividends over the next couple of years and it now has a forward yield of around 2.2%. This may make it appear to be rather unappealing as an income stock, but with profits rising rapidly, BHP Billiton’s dividend could increase at a rapid pace.

For example, in the next financial year BHP Billiton’s pre-tax profit is set to increase from £1.2bn to £3.1bn. While this rate of growth may not continue at the same pace in future years, it shows that with BHP Billiton’s dividends due to be fully covered by profit next year, there’s scope for a higher payout in future.

Clearly, this depends hugely on the price of commodities. But with the outlook for oil being brighter due to the likelihood of reduced supply and other commodities also having the potential to benefit from an improving global economy, BHP Billiton may hold some value as an income stock over the medium-to-long term.

Yield appeal

However, that appeal falls short of the attraction of SSE (LSE: SSE) and Intu Properties (LSE: INTU). They currently yield 6.1% and 4.7% respectively, which clearly makes them more appealing income plays right now than BHP Billiton. However, in the case of SSE, it also offers a more stable and resilient income outlook.

That’s because SSE’s business model is relatively robust and the chances of its bottom line collapsing (as has been the case for BHP Billiton) are slim. This should give its investors’ confidence in the outlook for dividends and with them forecast to at least match inflation over the medium term, SSE continues to be an excellent income buy. Furthermore, SSE trades on a price-to-earnings (P/E) ratio of just 13.2 and it therefore seems to offer good value for money.

Meanwhile, shopping centre operator Intu Properties also has upbeat dividend prospects. Its shareholder payouts have been remarkably consistent in recent years, even though the performance of the UK economy and retail sector have been rather challenging. This bodes well for the company’s investors since the outlook for the sector is highly uncertain at the moment. And with Intu Properties trading on a price-to-book (P/B) ratio of 0.8, there’s upside potential on offer.

So, while BHP Billiton remains a sound long-term buy from a total return perspective, SSE and Intu Properties seem to offer more dividend potential than the mining giant at the present time.

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.

Peter Stephens owns shares of BHP Billiton and SSE. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »