Should you buy BHP Billiton Limited shares today?

BHP Billiton Limited’s (ASX:BHP) monstrous fully franked dividend yield is likely one of the factors stopping its shares from falling even further right now.

| More on:
a woman

If you look through the ASX, most companies maintain dividend policies whereby they commit to distribute a certain percentage of earnings to shareholders.

For instance, a company with a dividend payout ratio of 75% would distribute 7.5 cents for every 10 cents in earnings per share.

But not BHP Billiton Limited (ASX: BHP)

BHP Billiton has what it refers to as a ‘progressive’ dividend policy, in which it is committed to increase, or at very least maintain, its US-denominated dividend to shareholders every six-months.

It’s a policy that shareholders grew to love during the boom years with BHP not cutting its dividend since the late 1980s. But now, even its biggest shareholders think it’s an ‘aspiration’ which cannot be maintained in the long run.

According to The Australian Financial Review, that’s the view of Ross Barker, managing director for top 10 shareholder, the Australian Foundation Investment Company.

He reportedly said: “We accept that it is the company’s aspiration but it has to be subservient to the need to make sure debt is kept sensible… In our view, as a long-term investor, the balance sheet is more important.”

BHP’s monstrous fully franked dividend yield is likely one of the factors stopping its shares from falling even further right now as it battles against falling commodity prices.

It hit another speed-hump just over a week ago when one of its tailings dams in Brazil collapsed. The catastrophe will likely cost the miner north of US$500 million, while the mine itself may never reopen for business.

Scrapping the progressive dividend policy would no doubt disappoint investors and could even see shares plunge in the short-term, but it seems as though it would be the best course of action in the long run.

BHP Billiton itself has discussed the possibility of taking out more short-term debt to fund the policy which would place its balance sheet under even more pressure. The alternative would be to sell some assets to raise cash, but that too would weaken its balance sheet position.

The coming years will be truly testing for BHP Billiton, as well as for rivals such as Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG).

Key commodity prices are expected to continue falling, adding pressure to margins and overall cash flows. If earnings continue to drop, it’ll be very difficult for BHP Billiton to justify increasing its dividend payments just for the sake of saving face with investors.

Although the shares are trading around their lowest price since 2008, I’m not a buyer of BHP Billiton today and believe investors should focus their attention elsewhere.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »