Beyond BHP Billiton's 7.9% fully franked dividend yield

Often the best ideas for dividend investors are found outside of the big banks and miners, leaving no stone unturned to find them.

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Did you know, one of Australia's most popular blue chip stocks is offering a whopping 7.9 per cent fully franked dividend yield right now?

Grossed up, that's a yield of 11.3 per cent!

Normally investors would jump at such a "once in a lifetime" opportunity.

In fact, if it were any of the Big Four banks, or Telstra Corporation Ltd (ASX: TLS), I could almost guarantee they'd be snapped up in a heartbeat – especially with interest rates sitting at just 2 per cent, and possibly headed lower.

But not so with BHP Billiton Limited (ASX: BHP).

Instead, Australia's greatest miner plunged more than 5 per cent to a fresh low of $21.42 yesterday.

It hasn't traded at that price since December 2008, while it's lost more than half its market value since peaking in 2011… Ouch!

The fact is, BHP Billiton, like all other miners, is a capital intensive business.

It spends a tonne of cash on new mining projects and then relies on commodity prices remaining high to make those projects worthwhile.

That's where it all came undone for the 'Big Australian'…

The Australian Financial Review says that commodities have slumped to their lowest level since 1999.

While some are predicting a floor, others believe things will get even worse from here – particularly for iron ore and oil which are, coincidentally, BHP's two most important commodities.

Making matters worse is BHP Billiton's Somarco mine disaster in Brazil, which has dominated news headlines since Friday last week.

The Wall Street Journal even cited one expert as saying 'The dam breach was the largest-ever spill of its kind.'

While tragic from a human and environmental perspective, it could also become a tragedy for the group financially.

Sure, BHP said that the contribution from the Samarco operation was approximately 3 per cent of group earnings before interest and tax, or EBIT, in 2015.

That's not such a big deal…

What is a big deal however is the potential clean-up costs… The fines BHP could face… The compensation for affected families and those injured or killed…

In fact, some estimates suggest that could amount to hundreds of millions of dollars. Others suggest it could top $1 billion with Morgan Stanley questioning whether insurance will cover even part of the cost.

Aside from the enormous impact this event could have on BHP's 2016 profit result, there could well be other ramifications from the incident.

As Bruce Jackson, General Manager of The Motley Fool Australia said on Monday…

"From an investing perspective, it could be the incident that ultimately finishes BHP CEO Andrew Mackenzie's progressive dividend policy."

Personally, I thought the dividend policy was done for, regardless. BHP was already talking about increasing its debt levels just to fund the shareholder distributions, and that's never a great sign of sustainability…

Friday's disaster in Brazil all but confirmed my convictions, and it seems the market now agrees.

That's why BHP shares have been sold down so heavily. Investors are losing faith that the miner can increase the dividend every six months like it has in recent years.

Otherwise, there's no way the shares could offer such a high yield. Investors simply wouldn't let that happen.

The fact is, while BHP's trailing yield might look attractive, the outlook for the business does not. At least not in this environment, where Chinese growth looks set to continue slowing, in turn putting further pressure on commodity prices.

To me, that's as good a reason as any to steer clear of BHP Billiton.

Our resident dividend expert tends to agree. Andrew Page, who heads the Motley Fool Dividend Investor service, has stopped short of recommending investors buy BHP Billiton, despite its monstrous dividend yield.

Believe it or not, Andrew is also yet to issue a "buy" recommendation on any of the Big Four banks!

That might seem odd for an Australian dividend stock picking service, but as Andrew said in August:

"Of course, there will come a point where it makes sense to invest in the banks. When their balance sheets are in better shape, and their share prices represent good value, I'll be urging Motley Fool Dividend Investor members to load up!"

But for now, there simply remain far better opportunities.

Rather than limiting yourself to the typical blue chip stocks, often the best ideas for dividend investors are found outside of the big banks and miners, leaving no stone unturned to find them.

That's how Andrew found Australian Pharmaceuticals Industries Limited (ASX: API) in January 2015, which has surged 133 per cent in the time since.

Indeed, Andrew's entire scorecard is full of dividend dynamos that are offering outstanding yields – all of which are solid, proven and low risk businesses that generate loads of cash for their shareholders, yet get overlooked in favour of the bigger players.

With the ASX still hovering well below its highs from earlier this year, there are loads of other great opportunities out there.

In fact, Andrew is currently making the finishing touches to his latest Motley Fool Dividend Investor recommendation, which he will release to members today!

Sign up today to be among the first individuals to learn the name of this company, and a full write-up on why Andrew thinks it's a buy, which will hit members' inboxes at 4:30pm AEDT, after the market's close.

With interest rates sitting at a record low, and likely to stay there for years to come, there's never been a better time to join!

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