The share price of BHP Billiton Limited (ASX: BHP) crashed to a seven-year low today as investors wake up to the fact that its interim dividend is facing an almighty chop for the six months ending December 2015.
BHP Billiton’s main revenue and profit drivers remain oil and iron ore, which are two commodities that have seen shocking price falls over the space of the past year, with a weak outlook based on increasing supply and soft global demand.
The miner currently has a progressive dividend policy whereby it has guaranteed to at least maintain or raise its dividend payout to shareholders on a consecutive basis, although that looks all but certain to be scrapped.
The group’s chairman, Jac Nasser, has already given a huge hint to investors at the company’s AGM last week that the balance sheet will take priority over hare-brained aspirations to increase dividends.
The company would likely have to borrow more to sustain its dividend policy, which would mean more debt on the balance sheet and longer-term problems created just to support a mindless promise over a dividend policy made in an entirely different operating environment.
Given the disaster at the Samarco mine in Brazil and fact management has already stated the balance sheet will take priority over borrowing to pay dividends, I would not be surprised to see the dividend slashed nearly in half this year.
And nor would the market by the looks of today’s share price.
BHP Billiton’s shares crashed to $19.65 today which places it on a trailing yield of 8.4% – so even if the dividend were cut in half it would still yield a healthy 4.2% – hardly an amount for investors to complain about given the challenging operating conditions.
A dividend axing for BHP looks a near certainty then, while other mining giants in the space including Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) are facing uphill battles perhaps even greater…