BHP Billiton Limited (ASX: BHP) has decided to slash its dividend for the first time in decades today, bringing an end to its controversial “progressive dividend policy”.

At its half-year earnings results, the miner said it would cut its dividend by more than half in light of the current environment, which saw BHP report a record US$5.67 billion loss for the six months ended 31 December, 2015.

The dividend was cut from US 62 cents per share (fully franked) in the same period from last year to just US 16 cents for the latest six months, which The Australian Financial Review said was its first dividend cut since 1988.

The dividend for the latest half represents a decline of nearly 75%, which is a much greater decline than what many analysts were expecting (many suggested it would cut its dividend by around half for the full year).

A new dividend policy

BHP has adopted a new dividend policy which provides a minimum 50% payout of underlying attributable profit at every reporting period. That compares to BHP’s previous promise to shareholders that it would increase its US-denominated dividend at every six-month interval, no matter its profit result. It said that the US 16 cent dividend declared for the latest half will be covered by free cash flow.

It also said: “Our new dividend policy and transparent capital allocation framework are part of a broader strategy to help BHP Billiton manage volatility. We have already responded decisively to the changed conditions. The divestment of US$7 billion of assets and the demerger of South32 leaves us with a focused portfolio of large, low-cost, long-life assets in a set of favoured commodities.”

Meanwhile, it is operating its assets more productively and expects further gains to be realised from these initiatives over this financial year. “We will also reduce capital expenditure in the 2016 and 2017 financial years by a total of US$3.5 billion, while retaining a suite of high-return, value-enhancing projects.

Despite BHP’s numerous reiterations that it was committed to its progressive dividend policy, a cut to the dividend was widely anticipated. Firstly, comments from the group’s chairman, Jac Nasser, at the annual general meeting that the company’s top priority was the strength of its balance sheet set the agenda, while recent dividend cuts from rivals such as Rio Tinto Limited (ASX: RIO), Vale and Glencore also indicated a cut wasn’t far away.

But BHP didn’t really have much of a choice. The Standard & Poor’s credit ratings agency recently cut BHP’s credit rating by one notch, and said there would be more to come if BHP failed to cut its dividend, or if it didn’t cut its capital expenditures by an adequate amount. As such, the decision should help BHP avoid further credit rating cuts in the near future.

Therefore, while some investors may be disappointed in BHP’s decision to cut its dividend, it was a wise move on the company’s behalf to better ensure it has the capacity to weather the commodities storm.

BHP’s actual earnings result will also be covered today, so keep an eye out on fool.com.au for more.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.