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Why you shouldn’t ignore BHP Billiton Limited’s 4.7% grossed-up dividend yield

Mining juggernaut BHP Billiton Limited (ASX: BHP) has fallen another 14c or 0.36% today after dropping more than 1.5% last week. The stock is now trading at $38.27, which compares to its 52-week high price of $39.79 and 52-week low of $34.35.

BHP might not be the cheapest miner or the highest yielding blue-chip stock on the ASX, but its shares are still looking like a reasonable buy today.

Indeed, it is trading on a much greater P/E ratio than its primary peers in Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG), but it should also be noted that its high level of diversification makes it a much safer buy than those two stocks.

Meanwhile, its 3.3% fully franked dividend yield, or grossed up 4.7% yield, is nothing to be sneezed at. While it might not be as attractive as the dividends offered by the big four banks, it still beats the alternative returns from term deposits or government bonds. In addition, the capital gains that could be made from BHP over the coming years could definitely outpace the capital gains of the banks.

While its shares could certainly retreat in the near term with commodity prices (and the market as a whole) remaining volatile, BHP could be a good bet for investors over the long term. This is particularly the case thanks to its exposure to the coal and potash markets, for which demand should remain strong for decades to come.

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Although I don’t currently own shares in BHP Billiton, the stock is sitting firmly on my watchlist and a drop in price could definitely tempt me to buy.

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