This Week’s Top Blue-Chip Income Buy: BHP Billiton plc

I’m always on the lookout for big FTSE 100 companies when they’re being offered in the market at an attractive valuation for dividend investors. A little higher yield at the time you buy can make a big difference to the growth of your income stream over the long term. Right now, I reckon BHP Billiton (LSE: BLT) (NYSE: BBL.US) is looking a great buy for income.

The typical dividend yield of a sector tends to vary from industry to industry. Utilities, for example, generally offer higher yields. But it would be a foolish income investor who invested only in utilities (or the high-yielding banks just before their dividends were slashed!). Diversification is the income investor’s friend.

A great opportunity right now

The mining industry is currently out of favour with the market, and while this is not typically one of the highest yielding sectors, miners’ yields are currently above the market average and at levels not seen within the industry for many a long year.

There are short-term worries about demand from important regions, such as China, but the long-term story of infrastructure growth — and thus demand for natural resources — within emerging economies surely remains intact.

BHP Billiton is not only the world’s biggest and most diversified miner, but is also currently offering a higher yield than FTSE 100 megacap alternatives Rio Tinto and Glencore Xstrata:

  Recent share price Forecast dividend yield
BHP Billiton 1,810p 4.2%
Rio Tinto 3,240p 3.6%
Glencore Xstrata 305p 3.3%

BHP Billiton also outpoints its rivals in a number of other ways: the group’s assets are predominantly in safer geographical locations, notably Australia and North America; sector-leading return on equity testifies to the quality of the assets and operations; and a history of annually increasing dividends — even through the recent recession — is unparalleled among its peers.

The table below shows BHP Billiton’s tremendous dividend growth through the booming mid-Noughties, and the more restrained — but still impressive — growth and forecast growth through the current tougher times.

Year end 30 June Dividend per share ($) Growth (%)
2015E 1.29 5.7
2014E 1.22 5.2
2013 1.16 3.6
2012 1.12 10.9
2011 1.01 16.1
2010 0.87 6.1
2009 0.82 17.1
2008 0.70 48.9
2007 0.47 30.6
2006 0.36 28.6
2005 0.28 55.6

One diligent income investor on the Motley Fool’s discussion boards has calculated the compound annual growth rate of BHP Billiton’s dividend since 1968 as 10.4%.

It’s not too often you find a global leader with a top-notch dividend record offering a yield above the market average. Hence, I rate BHP Billiton a great buy for long-term income investors right now.

Another top income opportunity

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> G A Chester does not own any shares mentioned in this article.