Is BHP Billiton Limited’s 8.3% fully franked dividend worth your attention?

Credit: Lucas Walters

Oil and mining companies around the world are being forced to reduce – or else scrap – their dividends to shareholders, and BHP Billiton Limited (ASX: BHP) could be forced to do the same.

According to The Australian Financial Review, a recent report from the Henderson Global Dividend Index for the third quarter shows that BHP Billiton ranked 11th in the world based on the value of its dividend payment. It was the top-ranked Australian company, ahead of Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC), and just behind global tech giant Apple.

However, the sustainability of the miner’s so-called “progressive dividend policy” has been called into question. Under the policy, BHP promises to increase, or at least maintain, its US-denominated dividends in every six-month period, a task which was certainly achievable during the mining boom.

However, commodity prices have fallen heavily more recently, putting BHP’s cash flows and earnings under strain. Other miners around the world are in a similar position and have been forced to cut their dividends as a result with the AFR reporting a 21.4% year-on-year sector-wide decline during the third quarter.

Basic materials companies were the next worst-performing sector for dividend growth, down 7.4% year-on-year.

While BHP Billiton has so far managed to buck that trend, the clock appears to be ticking on just how long it can sustain its promise to shareholders. As if falling commodity prices weren’t enough, the catastrophic failure of ones of its tailings dams in Brazil just over a week ago could lead to the end of the policy with the tragedy tipped to cost the miner more than US$500 million in clean-up fees and fines.

BHP Billiton’s shares have fallen another 0.4% today and are hovering near their lowest price since 2008 at $20.17. At that price, they’re trading on an 8.3% fully franked dividend yield but the fact that the shares continue to fall reflects the market’s lack of confidence that those payments can be sustained.

Despite its low price, I’m not a buyer of BHP Billiton shares and think there are far better alternatives to consider today.

Get our #1 Dividend Stock for 2015-16 - FREE!

Rather than buying BHP Billiton, you should know that Scott Phillips, lead advisor for Motley Fool Share Advisor, has just named his #1 dividend stock for 2015-2016, and I think it's a GREAT BUY today! To find out more about this ultra-promising company, simply click here now, enter your email address, and we'll send you Scott's brand-new free report.

This is a FREE service offered by The Motley Fool. No credit card details or payment required

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.