Are shareholders in BHP Billiton Limited set for an $18bn windfall?

Shareholders in BHP Billiton Limited (ASX:BHP) might get a bigger-than-expected cash return from the world's largest miner this year. Here's why…

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Mining giant BHP Billiton Limited (ASX: BHP) may be able to deliver a bigger-than-expected capital return later this year on news that it could get as many as 50 qualified and interested parties to look at its shale assets.

There's nothing like a bit of competition to drive up asset prices and BHP has already gotten 24 parties to sign confidentiality agreements to enter its data rooms for the sales, according to the Australian Financial Review.

The market is already expecting the sale of its unconventional oil & gas assets and for BHP to hand most of the proceeds back to shareholders in some form of capital return.

However, investors are pricing in the sale at a big discount to book value as BHP had overpaid for these assets during the "boom" times and had to write down their value.

Even then, these assets (namely Eagle Ford, Haynesville, Permian and Fayetteville) are sitting on BHP's balance sheet with a US$14 billion ($17.88 billion) valuation – or 42% lower than what the miner thought it was worth in 2015.

I don't think the market believes BHP can get that much for the assets but the discount to book value may be skinnier than what many are thinking given the intense interest BHP seems to be receiving.

What's more, the oil price is holding up better than what experts were forecasting last year and that has no doubt contributed to the interest in these assets.

Some keen buyers are offering an asset swap or a combination of assets and cash to consummate the deal. It's too early to predict the outcome but BHP's board knows an all-cash deal would be the favoured outcome for investors as the world's largest miner has indicated that it will give back as much cash as possible to shareholders from the sale process.

Getting a cash offer that is close to book value will trigger a rally in BHP's share price. To give you a sense of perspective, the miner paid an interim dividend of $2.28 billion this year. Getting sales proceeds that are anywhere close to $18 billion is game changing!

But it's unlikely that BHP will use a one-off windfall to increase dividends. Most of the cash is likely to be returned through a share buyback of some sort – similar to how Rio Tinto Limited (ASX: RIO) undertook its latest capital return – although a special dividend cannot be totally ruled out either.

As I wrote, the cash-flushed BHP could unseat Commonwealth Bank of Australia (ASX: CBA) as the most generous dividend payer on our market in the not-too-distant future.

But BHP isn't the only high-yielding blue-chip that should be on your radar for 2018. The experts at the Motley Fool have just nominated their three favourite big caps for the year.

Click on the link below to get your free report on these stocks and to find out why they are well placed to generate a superior total return in 2018.

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. 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 Scott Phillips.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

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 »

Two people in suits arm wrestle on a black and white chess board.
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 »