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Why the BHP Billiton Limited share price has fallen 18% this month

Credit: Lucas Walters

Shares of BHP Billiton Limited (ASX: BHP) have been stuck in a violent downtrend this month, sparked by falling commodity prices, a catastrophic failure of one of its dams in Brazil and grave concerns for the sustainability of its dividend.

Over the last month, the miner’s share price has fallen 18.5%, wiping billions of dollars from its market value. The shares have also fallen 31.7% since the beginning of the year and closed at just $18.77 on Friday. It was their lowest closing price since late 2008 after trading at nearly $47 early in 2011.

Although that compares to a mere 3.9% drop for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) since the beginning of the year, other miners have also been hit hard as a result of falling commodity prices. Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) have fallen 20.3% and 24.8%, while Woodside Petroleum Limited (ASX: WPL) has dropped 20.4% as well.

One of the real concerns facing BHP Billiton is the dilemma between protecting its balance sheet and its credit rating, and its promise to continue increasing its dividend every six months. The shares offer a monstrous 9% fully franked dividend yield now, but most analysts expect it to be cut some time in the next two years which could put the shares under even greater selling pressure.

Although research from Maple Abbott (reported in The Australian Financial Review) recently showed that BHP’s shares are at their cheapest level in 25 years on a book value basis, there’s nothing stopping them from falling even further. Indeed, many investors thought the shares were cheap at $30, then $25, and then $20, but anyone who bought in at those prices has been left outside in the cold on their investments so far.

While there could well come a time where BHP’s shares are simply too cheap to ignore, it is my opinion that there are too many uncertainties facing the miner, and the industry itself, right now to warrant an investment.

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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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