BHP Billiton Limited set to increase dividend by 9%

The mining giant will report for its first half on Tuesday.

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Diversified mining giant BHP Billiton Limited (ASX: BHP) is expected to post an underlying profit of US$7.13 billion for the six months ending 31 December 2013 when it reports on Tuesday, while it is also expected to increase its interim dividend by 9% to 62c per share.

Although it might not be able to live up to the high benchmark set by rival Rio Tinto Limited (ASX: RIO) last week, which reported a 15% increase in dividend and a 10% increase in underlying earnings for its full year, shareholders should still be pleased with a positive return following a two-year dip in earnings.

A resilient iron ore price will make sure the steelmaking ingredient again dominates the company’s earnings, but investors will be watching for CEO Andrew Mackenzie’s outlook on the commodity after delivering a not-so optimistic long-term view on its price.

Other key focuses will include the company’s progress on cost reductions, which Mackenzie hopes to decrease by roughly 25% to US$16 billion this financial year, following last year’s US$2.7 billion reduction, as well as its petroleum production levels.

Petroleum production for the last three months of calendar year 2013 was unfortunately weaker than had been anticipated which Deutsche Bank analyst Paul Young believes should see the division profit remain flat for the half.

BHP’s shares are currently trading at $38.02, which resembles an 8.4% gain since hitting a low of $35.06 earlier in the month.

Foolish takeaway

Iron ore, which is BHP’s primary generator of revenue, has fallen in value by around 10% since the beginning of the year, this will have a negative impact on margins in the near future. However, the miner is still a much safer bet than others in the industry including Rio Tinto or pure iron ore plays Fortescue Metals Group Limited (ASX: FMG), or Mount Gibson Iron Limited (ASX: MGX), due to its high level of diversification.

Investors could consider adding BHP to their portfolio although an appropriate strategy may be to buy in thirds to allow for any falls in price.

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