One Footsie dividend stock I’d buy along with BHP Billiton plc today

Roland Head looks at the latest figures from FTSE 100 (INDEXFTSE:UKX) mining giant 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.

One of the big investing stories over the last two years has been the rapid recovery of the mining industry. FTSE 100 firms such as BHP Billiton (LSE: BLT) rose by more than 100% in 2016 and delivered further gains in 2017.

So what happens next? Today’s interim results from Anglo-Australian miner BHP make it clear that this business is performing well and generating a lot of cash.

Underlying net profit rose by 25% to $4,053m for the six months to 31 December, while the interim dividend has been increased by 38% to 55 cents per share, or around 39p.

Despite this, shares in this £86bn group have fallen by 3.5% so far today. Why is this?

A one-off boost?

The strong profit growth seen over the last six months was almost all driven by a single commodity — copper.

BHP’s average copper sale price during the half year was $3.20/lb, 33% higher than the $2.41/lb received during the same period last year. In addition to this, the group produced 17% more copper than it did last year.

As a result of these changes, copper sales rose by 51% to $6,381m during the first half. Underlying operating profit from the industrial metal increased by 83%, from $1,744m to $3,195m.

In contrast, profits from the company’s three other core commodities — oil and gas, iron ore and coal — were largely flat.

A buy for income

The boost provided by copper may not be repeated. But management expects the markets for all of its commodities to remain fairly stable and well supported over the next few years.

I believe shareholders should continue to enjoy generous dividends for as long as the board resists the temptation to splurge on costly growth projects. Despite the risk that profit growth could flatten out, I think BHP’s well-supported forecast yield of 4.1% is enough to justify an income buy.

A 5.5% yield I’d buy

My next stock offers a more generous yield of 5.5%. Home and motor insurance group Admiral Group (LSE: ADM) has a strong reputation as an income stock. Its business model allows the group to pay out most of its earnings as cash each year.

This stock has been a terrific success story for investors and fans include my fellow Fool Rupert Hargreaves. Since floating in 2004, Admiral’s share price has risen six-fold. Although the shares fell by 50% during the second half of 2011, they’ve since bounced back and are currently only 13% off last year’s all-time highs.

Popularity should deliver profit growth

Admiral is also a popular business. Customer numbers rose by 13% to 5.46m during the 12 months to 30 June 2017, with 4.34m customers in the UK alone.

Competitive conditions in the insurance sector meant that customer growth didn’t feed through to the firm’s earnings, which only rose by 3%. But I believe that the group’s scale should translate into higher profits when market conditions do become more favourable.

Analysts expect earnings per share to rise by nearly 5% in 2018, putting the stock on a forecast P/E of 16. The dividend policy is expected to remain generous, giving a prospective yield of 5.8%. In my opinion, this insurance stock remains a solid income buy.

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.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

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 »