Smashed: The BHP Billiton Limited share price plunges below $18

The BHP Billiton Limited (ASX: BHP) share price has continued its violent descent today, slipping another 1.9% to just $17.85. Shares traded as low as $17.81 earlier in the session – their lowest price in more than a decade – which represents a 38.4% decline over the last 12 months.

While the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) as a whole has fallen sharply today, the decline in BHP Billiton’s share price likely relates to the adverse movements in commodity prices recently.

For instance, iron ore, which is BHP Billiton’s most important commodity, slid another 0.9% overnight to just US$40.75 a tonne, according to The Metal Bulletin. It’s the lowest price the commodity has traded in at least six years while most analysts think there’s even more downside from this level.

Meanwhile, oil prices recovered overnight but are also expected to decline further in the coming months, while copper and coal prices also drifted lower.

Should you buy?

At its current price, BHP Billiton’s shares are trading on a 9.4% fully franked dividend yield. When grossed up for franking credits, that’s a yield of 13.5%!

The only way a blue chip company of BHP Billiton’s calibre can trade on such a monstrous dividend yield is if the market lacks the confidence it can actually be sustained.

Indeed, falling commodity prices had a drastic impact on BHP Billiton’s earnings in financial year 2015 (FY15), and look almost certain to do the same in FY16. The recent disaster at BHP’s iron ore mine at Samarco, Brazil, will further restrict cash flows which could also see BHP Billiton scrap its long-running progressive dividend policy.

Although the shares might seem awfully tempting at their current price, I think the shares could fall even further than their current level, making it a risky investment prospect. While there could well come a time where BHP’s shares are trading at a price that is simply too cheap to ignore, I don’t think that is the case just yet.


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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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