BHP Billiton, created following BHP and Billiton’s merger in 2001, is now the world’s largest miner. It is so large that when it demerged South 32 in 2015. The newly created company stands as an ASX 50 stock by itself and BHP still maintained its number 1 ranking. The separation of S32 from the company allowed BHP to focus on a top-tier portfolio of the lowest cost base assets. Covering a selected number of commodities where it sees a future.
Company Performance
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In the last 24 months, BHP’s key commodities from copper and iron Ore look to have recovered from the end of the last commodity boom. It is exiting most of the oil sector which is good given the current weak oil price.
The resource sector has outperformed the wider market due to the fall in the Australian dollar and in our opinion, the attractive annual dividend yield will continue to support the share price.
It had moved past the Samarco Mine disaster in Brazil, which came at a bad time when the commodity prices were still falling from weaker Chinese demand and added further pressure on the company in managing the possibility of a lower for longer commodity price environment.
Samarco Mine was a Joint Venture between BHP and Vale. It generated around 5% of EBIT for BHP with a long mine life of 30 plus years and the company wrote off the value of the asset on the balance sheet after the disaster as the liability look to exceed the future cash flows.
After the disaster, BHP management worked with the authorities in assisting the search and rescue and provide operational support.
BHP Dual Listing
Aside from being consistently being included in the top 10 largest stock in the ASX 300. Like Rio Tinto, BHP is dual listed on both the ASX and LSE (BHP:LSE) and quoted on the New York Stock Exchange (BHP:NYSE).
It is a quirk of the market because of its dual listing structure that there is always a premium or discount for the same shares which is traded on the LSE and ASX.
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BHP Dividend Rebased for sustainability.
The commodity sector is famously being cyclical where the earnings rise and fall with commodity prices. BHP had a progressive dividend policy and the goal was to reward shareholders with a gradual year on year increase in the dividend.
While there is no doubt that like RIO, BHP holds some of the best assets in each of the main commodities it operates in. We were skeptical if it is appropriate for a mining company to institute a fixed commitment year in and year out for a cyclical industry.
The fall in commodity prices and associated decline in earnings means that debt has to be raised to pay for a dividend at the bottom of the cycle when the investment return is the highest.
In early 2016, the management decided given the weak commodity price context, the policy is no longer sustainable and introduced new criteria for dividend payments based on:
Annual dividends paid are set at a minimum of 50% of underlying profit.
Consistent and increasing dividends are appropriate for AREITS or companies with predictable earnings streams such as Telstra.
BHP/BLT Dividend History
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Since BHP is dual listed on the ASX and LSE, the UK listed company’s dividends also include the equivalent rate of franking credits as the Australian listed company.
Australian investors would have received the final 2020 dividend in Australian dollars, but the declared dividend per share value was made in USD.
BHP Dividend Date
Interim Dividend: March
Final Dividend: September