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BHP Billiton: A Good Income Investment

Apr. 04, 2018 1:44 PM ETBHP Group Limited (BHP)10 Comments
Dividend Stream profile picture
Dividend Stream


  • BHP Billiton has reduced cost and improved production over the last couple years and generates lots of cash flow despite some high-profile mishaps.
  • I recommended BHP last October, shares are slightly higher.
  • I continue to recommend BHP for income investors. The dividend has significant cushion.

If you got into mining and resource giant BHP Billiton (NYSE:BHP) in early 2016, congratulations. Since then, shares have about doubled. Admittedly, I chickened out with BHP at the time, recommending 'staying on the sidelines' on January 21st of last year; right about at the bottom.

So, full disclosure, I missed out on that because I feared things could have gotten much worse for BHP. Since then, the company has muddled along through several headline-grabbing, multi-billion dollar mishaps which have shrouded the fantastic cost reduction program and advancing productivity in its bread and butter industry. The most important story, which many missed, was that BHP Billiton was increasing productivity, cutting costs and taking advantage of cost deflation to structurally improve margins and cash flow. This article takes a look at BHP's ongoing efforts and what income investors can expect going forward.

The big story

BHP Billiton has messed up a lot over the last five years. Let's go down the list because it bears repeating: The Samarco mine accident in Brazil which resulted in the flooding and displacement of entire towns, the fact that management went on a spending spree in shale oil and gas in the 2011 heyday, only to now try and exit the market entirely with commodity prices about half of what they were at that time. There's also the ambitious investments in both Olympic Dam and Jansen Mine, multi-billion dollar greenfield projects for iron ore and potash, respectively, which were started soon before collapses in commodity prices in both industries.

Each of those are significant setbacks, no doubt, but here is one thing that BHP Billiton did get right. Despite being overly ambitious with a few giant projects, BHP Billiton did foresee the general downturn in global commodities, particularly from the softening of demand from Asia. As a result, BHP started reacting in

This article was written by

Dividend Stream profile picture
Dividend Stream is a contributing columnist for Real Money and TheStreet.com. He has been writing for Seeking Alpha since 2012.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (10)

jstratt profile picture
I have been considering whether to add to my long term position in BHP.

On a company basis it is a reasonable investment. The issue that enhances the value to me is that I dont want to be too heavy in currency (cash). So I will add a little investment risk and reduce my currency risk.

We may be living in a time when currencies have peaked against real assets. At least I dont think real assets are overvalued. I try to think of investing in a cubed basis vs a squared basis more than I have in the past.
d_alpha profile picture
"So, full disclosure, I missed out on that because I feared things could have gotten much worse for BHP." I missed out for the same reason. Appreciate your honesty.
sa286 profile picture
wouldn't touch it
mango_man profile picture
...with a ten foot pole.
Look at that earnings profile ... man, that is a roller coaster I don't think I'd like to purchase a ticket to ride.
But they have strong balance sheet and quality assets
Dividendenlawine profile picture
Not sure if I would recommend BHP as an income investment.
It remains to be seen, if BHP can sustain the current dividend during a severe and prolonged economic downturn.
I wouldn't want to depend on a commodity company for save dividend income in case that were to happen.
Nonetheless I believe it's a great stock to hold for the long term if one can live with the cyclical nature of the business.
It's a safe bet someone will still have to mine commodities decades from now.
Hard to see anyone disrupting the business model of a mining company of BHPs scale.
So it's reasonable to assume BHP will still be around for a long time to come.
Long BHP since November 2014!
I've owned BHP Billiton for 14 years and have ridden it through numerous commodity cycles. The company has done a good job of managing though the cycles, in my view. Therefore I make no attempt to time the ups and downs of the commodity markets.
Investors domiciled in the USA considering the ADRs of BHP Billiton should know that there are two: ticker symbol BHP, which represents the Australian shares and BBL, which represents the shares that trade in London. Either way, you are investing in the same company and get the same dividend, however, for some inexplicable reason the London shares are cheaper than the Australian shares. Today the ticker 'BHP" representing the ADRs on the Australian traded shares, closed at $44.36 whereas the ADRs representing the BHP Billiton shares which are traded in London, ticker symbol, BBL, closed at $39.38. I called the company's investor relations dept, some time ago, and they confirmed that there is no difference between the ADRs except the price! So buy the cheaper one! There is no dividend withholding tax on the London traded ADRs, BBL, and there is no dividend withholding tax on the Australian ADR, BHP at this time because the dividends are "fully franked" (an Australian tax thing).
which is a better play: RIO vs BHP? Thanks
As you quite rightly point out - the management is a disaster
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