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Don’t be fooled by BHP’s increased dividend

As I reported yesterday, the results released by BHP Billiton (ASX: BHP) were ugly indeed.

Revenue fell 8.7%. Profits were down a stomach-churning 30%. And shares are down another 2.5% today, as of this writing.
Despite the profit slump, BHP raised its dividend, from US 57 cents to US 59 cents, taking the full year dividend to US$1.16 a share.

So you might say not all the news is bad news. After all, that’s an increase of 4 cents over last year’s dividend. Who doesn’t love a growing — and fully franked — dividend?

Still, any way you look at it, those 4 cents are cold comfort for those of us who’ve watched our BHP shares underperform the market over the last 12 months…

Not to mention that BHP’s dividend yield is only about 3% at today’s prices.

With the dividend yield far from exciting, and shares not looking cheap either, we’d all be wise to look elsewhere for opportunity.

Which brings me to an important phenomenon my Foolish colleagues and I have been observing in the ASX…

“Quality is expensive. All the cheap stuff is rubbish.”

We have to pay up for quality goods, we’re told. And nowhere is that more evident than in the Australian share market right now.

Let me illustrate the issue with a (small) joke: What’s the difference between a $30 set of sheets and a $700 set of sheets?

Beats me!

I’m not particular, myself. Give me the $30 ones from Kmart – I won’t complain. Some people can tell the difference between those ones and the ultra fancy 1,000-threadcount Egyptian cotton sheets, but not me.

Yet there’s a substantial difference in quality (or so I’m told, by my wife). “Quality is expensive. The cheap stuff is rubbish,” I hear.

The funny thing is…

You could say the same thing about the ASX right now

High quality businesses like the big banks – particularly Commonwealth Bank (ASX: CBA) – are looking extremely pricey. It’s not just the banks…

Add CSL (ASX: CSL), Treasury Wine Estates (ASX: TWE), Wesfarmers (ASX: WES), Iress (ASX: IRE), and Boral (ASX: BLD) to the list of expensive stocks – and we’re only just getting started.

Ditto some of Australia’s most promising and fast-growing businesses…

Domino’s Pizza (ASX: DMP) may not technically be a blue chip stock, but the shares are definitely ‘priced for perfection’ at 35 times earnings.

REA Group (ASX: REA) and Carsales.com (ASX: CRZ) trade for 42 times earnings and 32 times earnings, respectively – in other words, well, those companies had better keep on growing!

Yes, quality is expensive. And likewise, most of the cheap stuff is junk! Think about how many mining services companies are trading for just 2 or 3 times earnings…

Yet would you want to own them? To put it mildly, it’s extremely difficult to assess these businesses’ future prospects.

Some might be screaming buys. No doubt some will go out of business altogether – meaning today’s share prices are cheap for good reason.

The quality gap is widening. The price gap is spreading… and, with very few exceptions or alternatives, investors like you and me are stuck in the painful position of buying expensive quality or cheap rubbish!

Queenslanders make stunning scientific discovery

Thankfully, even as we struggle to identify good opportunities in the share market, some of our problems are getting solved.

Consider this: “Australian Scientists Discover the Secret to Hydrating Beer.”

(C’mon, you can’t blame me for clicking. Talk about an attention-grabbing headline!)

Apparently, researchers at the Gold Coast’s Griffith University have discovered that, by adding electrolytes (which are often found in sports drinks) to light beer, they can make a brew that hydrates and refreshes, yet tastes just the same.

Associate Professor Ben Desbrow was quoted as saying, “Of the four different beers the subjects consumed, our augmented light beer was by far the most well retained by the body, meaning it was the most effective at re-hydrating the subjects.”

If that isn’t a breakthrough and a cause for hope, I don’t know what is.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get 3 Stocks for the Great Dividend Boom in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Of the companies mentioned above, Bruce Jackson has an interest in BHP Billiton, Commonwealth Bank and Wesfarmers.

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