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What is the BHP Billiton Limited special dividend amount and when will it be paid?

As one of the most widely held share on the S&P / ASX200 (ASX: XJO) a lot of interest has been generated in the plans of BHP Billiton Limited (ASX: BHP) to pay out a huge US$10.4 billion or A$14.4 billion to eligible shareholders in the form of a share buyback and special dividend payment.

The mining and energy giant is in a position to make such a generous return to investors after the US$10.8 billion sale of all of its onshore US oil and gas assets.

British company BP Plc agreed to pay US$10.5 billion for the Eagle Ford and Permian assets, while US company Merit Energy has paid US$0.3 billion for the remaining Haynesville assets.

So what amounts will be returned to shareholders and when will payments be made?

Off-market buyback

First of all BHP intends to complete an off-market buyback of US$5.2 billion (A$7.3 billion) worth of shares.

So although individual shareholders won’t see any of this money credited to their nominated accounts the buyback will have many benefits for shareholders.

If a company buys back a lot of its shares on issue then its future profits per share will naturally increase as there are fewer shares on issue to be allocated part of the profit. This logically means more dividends per share should be available over the medium term to investors assuming total profits go up or stay flat.

Further, is that eligible shareholders have the opportunity to offer their existing shares for sale to BHP as part of the buyback process at which BHP can buy shares at a discount up to 14% of the calculated market price for the buyback.

For some BHP shareholders it may make sense tax wise to sell shares in the buyback to take advantage of tax breaks. However, all shareholders should seek their own tax advice before taking any decision.

The tender period for the buyback will close December 14 and the buyback price will be announced December 17.

One advantage BHP has of conducting the buyback now is that after it there will be less shares on issue for when it determines what the special dividend per share paid to investors will be.

So what will the special dividend be?

It will be credited to eligible shareholders’ accounts and will include 100% franking credits to make it especially tax effective. The special dividend amount will be US$5.2 billion (A$7.3b) divided by the number of shares on issue after the US$5.2 billion share buyback.

The special dividend amount will be offiicially announced on December 17 and payment is expected to be made to shareholders on January 30, 2019. However, you must be on the share register as at January 9, 2019 to be eligible for the dividend.

The Fairfax press has reported that an analyst at professional broker Morgans has estimated that the special dividend will be around US$1 or $A1.40 per share. This is only an estimate for now though.

Elsewhere in the market both South32 Ltd (ASX: S32) and Rio Tinto Limited (ASX: RIO) have been conducting giant share buybacks of their own to cash in on a strong 2018 for commodity prices.

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Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. 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.