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Rarely Discussed: The Double Margin Of Safety Dividend Approach
- A great way to achieve a double margin of safety is to insist on both a cheap valuation plus a high dividend yield.
- A good example of a company that meets both of these criteria is BHP Billiton, trading at only 10x-11x profits and offering a well-supported 4.6% dividend yield.
- The inevitability of P/E expansion, plus the accumulation of dividends, will provide investors two layers of safety in the coming years.
BHP Billiton Is Giving Long-Term Dividend Growth Investors A Great Entry Point
- BHP Billiton is one of the most interesting dividend growth names in the market right now.
- It is sporting the highest dividend yield in many years.
- Near term concerns have dragged the price down to very cheap levels.
- Long-term investors buying now will do very well particularly if they choose to reinvest their dividends.
- Recently, the Australian dollar touched a four-year low of 0.8553 against the U.S. dollar.
- The Reserve Bank of Australia expects the Australian dollar to depreciate further.
- BHP Billiton's earnings are sensitive to the strength of the Australian dollar against the U.S. dollar.
- The company has great financial efficiency ratios and a great dividend.
- The projected earnings for next year are less than what the company earned in the trailing twelve months.
- The stock shows about the same risk as reward and I'm going to take a pass on purchasing the stock for the IRA.
- BHP Billiton's valuation has suffered due to associations with the falling prices in iron ore and coal.
- BHP Billiton has undertaken cost cutting initiatives, and is spinning out lower growth divisions into a new listed entity - 'New Co.'
- Valuation on cash flows is $160-180 billion vs. market capitalization of $150 billion.
BHP Billiton: Lower Iron Ore And Crude Oil Prices Will Impact Earnings
- Iron ore prices are declining.
- Crude oil price are declining.
- BHP Billiton's net profit after tax is sensitive to iron ore and crude oil prices.
- Tugboat officers at Port Hedland approved a strike action for the second time this year.
- If the officers strike, then it will affect exports of BHP Billiton and Fortescue Metals Group.
- A recent amendment to the Fair Work Act will prevent tugboat officers from threatening iron ore miners to resort to strikes in the future.
- BHP Billiton signs MOU with Mexico's Pemex for information exchange.
- This could lead to a formal working partnership for offshore oil development.
- The resource rich Perdido oil province would be very attractive for BHP to work in.
- Iron ore prices have overshot to the downside, and are due for a rebound.
- Any rebound in commodity prices will deliver a meaningful impact to the bottom line.
- BHP Billiton's spin-off of assets will boost shareholder value in the long run.
- BHP Billiton has lower exposure to iron ore compared to its peers. The recent fall in iron ore prices is not a worry.
- Mexico has opened its oil & gas resources for foreign companies. BHP Billiton is interested in developing the country's deep water resources, which will enhance its petroleum portfolio.
- Copper output from Escondida mine may increase 220,462 tons (200,000 tonnes) per annum from fiscal year 2018.
- The recent fall is a buying opportunity for long term buyers.
- BHP Billiton recently announced a spin-off of a selection of its non-core assets.
- The company has, however, excluded Nickel West from the planned spin-off.
- BHP Billiton plans to sell Nickel West as a standalone company.
- While some analysts and investors have questioned the company’s decision to not include Nickel West in the spin-off, the company has taken the right decision.
These 3 Australian Iron Ore Miners Stand Up Best To Weakening Spot Prices
- Iron ore spot prices are falling to levels lower than previous 2012 low.
- Increased production volumes are generating even higher earnings despite depressed commodity price.
- The winners are those companies that meet classic cyclical investing standards.
BHP Billiton Restructures For Growth, Continuing Reign As Global Mining Giant
- Reportedly, BHP will spin off a number of assets into a new company, aptly-named NewCo, to be listed on Australian stock exchange and in Johannesburg.
- NewCo will take charge of businesses that aren't seen as essential to BHP's future, while BHP will continue to focus on iron ore, copper and potash.
- Continued experimentation has proved successful for BHP, having reported a 23% increase in net profit for 2013 and increased cash flow in 2014 by over $8 billion.
- With an added dividend increase of 4%, it appears BHP is quite confident in its future—we suggest investors be so, as well.
BHP Billiton Will Create Value For Shareholders In The Long Term
- As the commodity boom has ended, miners have been forced to reassess their strategy.
- This week BHP Billiton announced spin-off of its non-core assets into a new independent company.
- BHP Billiton’s shares fell sharply after the announcement of the spin-off; however, the drop in shares was due to the fact that the company did not announce a share buyback.
- Weaker iron ore prices have resulted in BHP Billiton not announcing a buyback.
- The company’s strategy to simplify its portfolio and focus on core assets will eventually create value for shareholders.
BHP Billiton To Shed Non-Core Businesses, Expand Eagle Ford Shale Oil For Potential Export Sales
- Even BHP Billiton, the world’s largest mining company, has to conform to cyclical changes in its industry.
- De-merger plans of non-core commodity businesses – possible $14 billion market cap company - could help improve margins and re-direct capex to higher profit businesses.
- BHP Billiton Limited is expanding its oil and gas developments in North America for better diversification and higher revenues.
- The iron ore segment is facing challenges like iron ore price decline, workers strike, and strengthening Australian dollar.
- The direction of copper prices is also important for copper segment.
- The coal segment is facing challenges like lower coal prices, rising cost, and strengthening Australian dollar.
- The outlook for petroleum segment looks good as liquids contribution to the total shale production is expected to rise.
BHP Billiton: Winner Of Australia's Carbon Tax Repeal
- BHP stands to gain about $77 million per year from the repeal of the Australian carbon tax worth about a total of $7 billion.
- It is not a significant sum, given the size of company.
- The impact on the company depends very much on what it decides to do with the money.
Today, 8:58 AM
- Iron ore trades below $70 for the first time in five years, as rising low-cost supplies by the world’s top miners widen a global glut amid slowing demand from China.
- Ore with 62% content delivered to Qingdao fell 1.2% to $69.58/dry metric ton, the lowest since June 2009, and has dropped 48% YTD.
- “The biggest problem is on the supply side as majors like BHP and Rio are pushing huge volumes into the lackluster demand environment," says Bernstein's Paul Gait, who adds that $65 "feels like a floor."
- BHP -1.8%, VALE -0.6%, RIO -0.4% premarket.
Yesterday, 5:59 PM
- The flooding of Uralkali's Russian potash mine is confirmation for BHP Billiton (NYSE:BHP) CEO Andrew Mackenzie of the wisdom of his company’s planned move into the industry.
- No major new mines have begun production since the 1970s, and the halt of operations at the Solikamsk-2 mine - which accounts for 3% of the world's total supply - is a sign of the vulnerability of supply as the need to feed a growing global population spurs demand, the CEO says.
- BHP hopes to build its Jansen project in Saskatchewan sometime in the next decade, though Mackenzie is cautious about giving an exact timeline.
Yesterday, 2:58 PM
- BHP Billiton's (BHP -2.2%) commitment to target $4B/year in cost cuts and other productivity gains in its core portfolio is a clarion call to the big mining contractors that times are about to get tougher.
- Despite the spending cuts and productivity gains, analysts think it will not be enough to deliver a round of share buybacks or special dividends in February.
- "If you look at the iron ore price, no one would reasonably be expecting any of the majors would be in a strong position to return capital above the base dividends. In this market people are questioning the ability to in some cases even pay that base dividend," says CLSA's David Radclyffe.
- Iron ore prices currently are ~$70/metric ton, while prices hit a high of $180 less than three years ago; coal, oil and other commodities are also taking a bath, crunching the profit margins of the miners.
Yesterday, 7:53 AM| Comment!
Sun, Nov. 23, 4:26 PM
Thu, Nov. 20, 10:40 AM
- BHP Billiton (BHP -1.5%) CEO Andrew Mackenzie seeks to reassure investors of the company's commitment to boosting cash returns as commodity prices slide, while saying a buyback of shares is not the top priority right now.
- Mackenzie says his key focus is to keep the company’s balance sheet strong - which includes maintaining what he says is a solid A credit rating - followed by a strong dividend, "then we selectively invest in what we have for growth, and only then if we can see excess cash might we consider [a buyback]."
- UBS said recently that it did not expect any such buyback until at least the middle of next year given the steep drop in iron ore prices, and Jefferies has said BHP is likely to underwhelm from a capital returns perspective unless commodity prices rebound more than expected.
Wed, Nov. 19, 12:26 PM
- Iron ore prices extend their historic decline, approaching $70/dry ton in a retreat to the lowest level in more than five years, as analysts rule out any Chinese restocking that typically supports prices towards the end of each year.
- The price is now at a level at which all but the three biggest low-cost producers - Rio Tinto (RIO -2.4%), BHP Billiton (BHP -3%) and Fortescue (OTCPK:FSUMF -8.8%) - are either generating losses or are struggling to break even.
- Steel stocks also are getting whacked: SCHN -5.4%, X -4%, PKX -3%, AKS -3%, CMC -2.7%, STLD -2.5%, NUE -1.6%, MT -1.3%.
Tue, Nov. 18, 12:49 PM
- Iron ore extends its tumble deeper into five-year lows as declining home prices in China add to worries that an economic slowdown in iron ore's biggest buyer will deepen and exacerbate an oversupply.
- Ore with 62% content delivered to Qingdao, China, has retreated 47% YTD to $71.80 a dry ton, and Citigroup thinks prices may drop to less than $60/ton next year as output rises further and demand remains weak; China’s bad loans climbed in Q3 by the most since 2005, while new-home prices declined, adding to speculation the cooling economy will weaken further.
- VALE -2.9%, RIO -1.9%, BHP -1.1%, CLF -6%, X -1.4%, AKS -1.9%.
Tue, Nov. 18, 7:49 AM
- Tugboat engineers at Australia’s Port Hedland have voted down a proposed agreement on wages and leave, extending the threat of disruptions to iron ore shipments at the world’s largest bulk export terminal.
- The rejection renews the risk of delaying exports by companies including BHP Billiton (NYSE:BHP) and Fortescue Metals (OTCPK:FSUMF).
- Iron ore is Australia’s biggest commodity export earner and disruptions could cost suppliers A$100M/day, BHP has said, and shipments through Port Hedland represented ~55% of the country’s iron ore exports last year.
Fri, Nov. 14, 4:56 PM
- New developments and the expansion of older oil fields are expected to lift deepwater Gulf of Mexico production 18% Y/Y to 1.9M boe/day in 2016, the first new production peak seen since 2009, according to Wood Mackenzie’s latest outlook.
- However, production is expected to plateau for the remainder of the decade following the 2016 peak due to the depletion of legacy fields and a limited number of new projects coming onstream.
- Among top Gulf producers: RDS.A, RDS.B, BP, CVX, BHP, APC, APA, HES, E, EXXI.
Tue, Nov. 11, 5:47 PM
- BHP Billiton (NYSE:BHP) abandons the sale of its Nickel West mining operation in Western Australia, saying it had not been able to find a buyer willing to pay an acceptable price for the asset.
- BHP had been reviewing its options for the Nickel West business, which includes the Mount Keith, Cliffs and Leinster mines and associated concentrators, the Kalgoorlie smelter, Kambalda concentrator and Kwinana refinery.
Mon, Nov. 10, 8:56 AM
- Rio Tinto (NYSE:RIO) CEO Sam Walsh tells Reuters he is unfazed by plunging ore prices, believing his company's industry-low production costs of $20.40/metric ton in H1 2014 will help it ride out the storm.
- Walsh also says he is confident of increasing returns to shareholders at full-year results in February, adding that RIO has no plans to cut its 2015 capital spending target of $8B, announced last year.
- RIO is on track to increase output 9% to 290M metric tons ahead of a push to 360M metric tons, ranking it second in size behind VALE and far ahead of third-place BHP.
Mon, Nov. 10, 7:58 AM
- Tugboat masters and deckhands at Australia’s Port Hedland have voted to accept a new labor agreement.
- While engineers still plan a four-hour work stoppage on Nov. 12, the agreements lessen the risk of disruption to iron ore supplies from BHP Billiton (NYSE:BHP) and Fortescue Metals (OTCPK:FSUMF).
- Iron ore is Australia’s biggest export earner, and shipments through Port Hedland represented 55% of the country’s iron ore exports last year; more than 80% of the cargoes go to China.
Fri, Nov. 7, 10:58 AM
- Iron ore prices cap their biggest weekly decline in more than five months and its third straight week of losses amid an expanding global surplus.
- Ore with 62% content delivered to Qingdao lost 4.7% this week to $75.84/dry metric ton, data from Australia's Port Hedland showed record iron ore exports last month, and steel mill closures ordered by China this week to curb air pollution for a global summit also was seen hurting demand.
- Iron ore has lost 44% YTD as producers including Vale (VALE +3.2%), BHP Billiton (BHP +3.7%) and Rio Tinto (RIO +2.6%) expanded supplies, and ABN Amro's Ben Cheung does not expect the oversupply situation to be alleviated next year.
- Vale, which is seeking to boost output by 50%, this week opened its $1.4B port in Malaysia where its Valemax vessels can unload cargoes for onward shipping to clients in Asia in smaller vessels.
Wed, Nov. 5, 2:01 AM
- BHP Billiton (NYSE:BHP) is planning to export ultralight oil from the U.S. without getting formal approval from Washington, testing the waters of exporting the minimally processed oil without a permit.
- People in the industry say the U.S. Commerce Department, which oversees oil exports, has been encouraging companies to pursue independent exports without having to issue new rulings permitting it, a process being called "self-classification."
- Pioneer Natural Resources and Enterprise Products Partners surprised oil markets earlier this year when they said they had obtained government approval to export the ultralight oil, known as condensate.
- BHP Billiton says it has already signed an agreement to sell a 650K barrel cargo to Swiss trader Vitol.
Mon, Nov. 3, 10:35 AM
- In a WSJ interview, BHP Billiton (BHP -1.2%) CEO Andrew Mackenzie discusses his belief that large resource companies can easily become unmanageable, with too much complexity and conflicting internal cultures.
- Mackenzie is seeking to sell or spin off a collection of BHP’s unwanted assets, so that he can focus the rest of the company on just four or five key commodities: coal, copper, iron ore, oil and gas, and perhaps potash.
- BHP is among the rising number of natural resources companies that are slimming down to hone their business and make earnings more predictable, and big deals such as Glencore's recent merger offer with Rio Tinto are “effectively off the agenda," the CEO says.
- The strategy is not universally loved; "The main beneficiary of the proposed demerger would appear to be the multitude of advisers that will no doubt require significant compensation for helping structure the deal,” says Bernstein analyst Paul Gait.
BHP vs. ETF Alternatives
BHP Billiton Ltd is a natural resources company. The Company is engaged in the producing commodities, including iron ore, metallurgical and energy coal, conventional and unconventional oil and gas, copper, aluminium, manganese, uranium, nickel and silver.
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