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BHP Billiton Limited to pay shareholders A$7.3 billion fully franked special dividend

This morning iron ore and energy giant BHP Billiton Limited (ASX: BHP) announced plans to return US$10.4 billion to shareholders in the form of an off market share buy-back valued up to US$5.2 billion (A$7.3 billion) and special dividend of the equivalent amount.

The off-market buy-back can apparently be completed at up to a 14% discount of the market price.

The cash splash for shareholders is because BHP has agreed to sell its US onshore petroleum assets for US$10.4 billion and the payout will take the amount of cash returned to shareholders over the past two years to US$21 billion according to CEO Andrew Mackenzie.

The group flagged that it decided on the off market buy-back component as it concluded some shareholders would benefit from this in terms of tax returns and as it would improve earnings per share over the long term for all shareholders who retain their stakes.

This is because when a company has less shares on issue (after a buy-back) earnings or profit per share naturally rises as the size of the pie has to be divided by a lower multiple.

The special dividend is due to be calculated on December 17 2018 after the off-market buyback is completed which means the dividend per share available to shareholders should be higher with up to US$5.2 billion of shares no longer on issue.

For Australian investors the special dividend will be fully franked with an ex-dividend date of 10 January 2019 .

Eligible Australian shareholders will also be entitled to offer shares to BHP in the off-market buy-back as this may be advantageous to them for tax purposes depending on their personal circumstances. BHP is expected to put more details over the terms and conditions of the off-market buy back on its website in the near future.

BHP sold its onshore US shale assets to BP America after pressure from some of its activist institutional investors to reduce its exposure to oil prices that are vulnerable to the rise of alternative energy sources and new extraction methods lifting supply. The activist investors also wanted the cash returned to them as announced today.

Other leaders in the ASX energy space including Woodside Petroleum Limited (ASX: WPL) and Oil Search Limited (ASX: OSH), which have also flirted with a merger recently as conditions toughen compared to the boom times of old.

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