It's not often you can find a high-quality blue chip stock paying a huge dividend yield. Even more so one that intends to continue increasing its dividend!
That company today is giant resources miner BHP Billiton Limited (ASX: BHP). For the 2015 and 2016 financial years, BHP is expected to pay slightly more than US$1.21 in dividends, or around A$1.67 at current exchange rates of around 74 US cents. At current prices of around $25.54, investors are looking at a fully franked dividend yield of 6.5%, or 9.3% grossed up to include those lovely franking credits.
BHP paid US$1.21 in dividends last financial year and has what it calls 'a progressive dividend policy'. In simple terms, it means the miner aims to equal or better the dividend paid out in the prior six months, no matter what happens. Today the miner's investor relations reconfirmed by email that BHP intended to continue with its progressive policy and was not going to rebase its dividend, despite the demerger of South32 Ltd (ASX: S32).
BHP shares are down 2.4% today before lunchtime, with many investors concerned that the miner will report a decade low profit. Expectations of US$5 billion in writedowns and other one-off charges, and the ongoing slide in iron ore, oil, copper and coal prices are all expected to weigh heavily on the miner's full-year results. Investment banks were predicting net profits of between US$2.4 billion and US$3.1 billion, although underlying net profit, excluding one-offs may be more representative of the miner's true results.
BHP is also forecasting lower production in three of its four main commodities in the 2016 financial year, with only iron ore production expected to rise (by 6% to 247 million tonnes). Petroleum products, coal and copper production are all expected to fall this year.
It remains to be seen whether BHP will ever abandon its progressive dividend policy – but while it's in place, Australian investors looking for juicy fully franked dividends have one very tempting option. For others, the policy doesn't make much sense and setting a target payout ratio of earnings might be a better idea, allowing the company to cut back dividends when earnings aren't so flash.
