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Why BHP Billiton Limited’s share price collapsed today

Credit: Lucas Walters

BHP Billiton Limited’s (ASX: BHP) share price has continued its rapid descent today with shares falling another 3.7%, compared to a 0.7% jump for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

With the miner’s share price now hovering below the $19 mark for the first time since 2008, BHP Billiton has no doubt caught the attention of investors looking for a bargain. The problem is, the shares could well have further to fall.

Unfortunately, there is no one factor pulling BHP Billiton’s shares lower. Of course, the primary catalyst has been crashing commodity prices which resulted in an enormous contraction in the miner’s group earnings during the 2015 financial year. Iron ore and oil prices are both hovering around multi-year lows with most analysts expecting even more pain in the months, and perhaps even years, to come.

Then there’s the issue surrounding BHP Billiton’s dividend yield. Although the miner’s shares are currently trading on a monstrous 8.9% fully franked dividend yield, it is widely expected to scrap its ‘progressive dividend’ policy in the near future to protect its balance sheet and credit rating.

The recent disaster involving one of its mines at Samarco, Brazil, has impacted investor sentiment even further. There are still numerous question marks surrounding the circumstances of the catastrophe, including the cause of the incident and the costs and potential fines that BHP will be responsible for paying as a result. Early estimates suggest the total amount will be north of US$500 million, which is the last thing BHP Billiton needs right now.

Of course, there could well come a time to buy BHP Billiton’s shares. But today, it seems there are far too many uncertainties which could drag the shares even lower. I’m not a buyer, and think investors should focus their attention elsewhere, for now.

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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.

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