Shares of mining giant BHP Billiton Limited (ASX: BHP) have rallied 4% today, making it one of the top performing blue-chip companies for the day.
Although it has fallen sharply over the last six months, BHP Billiton has made something of a turnaround over the last four trading days. It hit a low of $21.61 on Wednesday – its lowest price since late 2008 – but has since rebounded 8.8%, outperforming the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) by 6.1% during that time.
Notably, shares of Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) have also rebounded over the last few sessions.
The sudden rebound in the resources sector has even prompted some investors to suggest the rout may have finally come to an end. With a 7.2% fully franked dividend yield, many have also looked at BHP Billiton's shares as an excellent way to profit through a low interest rate environment.
Whether that holds true remains to be seen, but I certainly won't make that bet.
While it remains one of the world's lowest-cost and most diversified producers, it is still highly leveraged to commodity prices – particularly iron ore and oil, as well as copper and coal. With China's economic growth slowing down, I expect each of those commodities could come under pricing pressure in the coming years which could continue to weigh on BHP's earnings.
Worse yet, there is no certainty that BHP Billiton will be able to maintain its fully franked dividend in the long-term, let alone improve it. As it stands, the miner is paying out more in dividends than it is taking in as earnings which cannot be sustained in the long-term, unless it also increases its debt load or else sells assets to raise cash.
In my opinion, investors should ignore the recent rebound in BHP's share price and look to buy some of the market's other companies that have been sold off heavily through the market's recent bout of volatility.
