BHP, Rio to focus on shareholder returns

As resources companies divert their attention away from capital spending, investors can expect a greater focus on shareholder returns and productivity.

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

As resource-based companies divert their attention away from capital spending over the coming years, investors can expect a greater focus on shareholder returns and greater productivity.

Speaking at an industry conference earlier this week, BHP Billiton's (ASX: BHP) new CEO Andrew Mackenzie confirmed the company's intentions to cut spending back from a peak of more than $22 billion to $18 billion by the end of next fiscal year, and focus on returning to shareholders and increasing productivity levels on current projects. Sam Walsh, the CEO of BHP's primary competitor Rio Tinto (ASX: RIO), has also pledged to cut over $5 billion in costs by the end of 2014.

The resources sector has significantly lagged behind the rest of the market this year, having lost 8.5% compared to the 11.7% gain on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). A number of resource companies have faced harsh criticism from shareholders due to their increasingly higher capital expenditure on resources, despite falling prices and the high Australian dollar deterring overseas customers.

Under new management this year, selling off underperforming assets and redirecting attention towards successful projects has been a refreshed focus for both Rio and BHP, with Mackenzie suggesting that each of his company's divisions "must stand alone" and "vie against other operations for future investment."

Mackenzie added: "If a project, geography or commodity doesn't offer the right returns, we will redirect our capital elsewhere or we simply won't invest. That will obviously create an opportunity to have more capital returned to shareholders, and that is the balance that I'm very concerned to get right".

Nader Naeimi, portfolio manager at AMP Capital, owned by AMP (ASX: AMP), stated that whilst it is still important that investments are made, there is also a lot of cash on the balance sheets of resource companies, and returning some of it to investors would be welcomed.

Yesterday, the S&P/ASX 200 fell by 29.3 points, led by BHP and Rio, which lost 1.85% and 3.09% respectively. Fortescue Metals Group (ASX: FMG) also fell 4.01% to finish the day trading at $3.59.

Foolish takeaway

Looking at the S&P/ASX 20 (ASX: XTL), BHP and Rio remain the cheapest in terms of value. As the financial and retail sectors have increased, the dividend yields on offer have decreased, whilst low mineral prices have caused the resources sector to plunge. With a current yield of 3.1% for Rio and 3.4% for BHP (which both look likely to increase), these companies are starting to look more attractive to add to your portfolio.

More reading

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »