BHP Billiton (ASX: BHP) is a global resources company headquartered in Melbourne, Australia and is involved in the production of iron ore, copper, uranium & metallurgical coal with significant interests in the energy sector.
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FY16 Performance (Source: Company Reports)
In the second half of February this year, prior to the company announcing its financial results for H1 2016, CEO- Andrew Mackenzie declared that the board of BHP adopted a change in the dividend payment policy, which will henceforth be linked directly to the performance of the company, thereby balancing the company’s investments and its returns to shareholders. Following his announcement, the company slashed its first half dividends to 16 cents a share from 62 cents, a year earlier, and this is a substantial cut of 74 percent, on the back of a huge decline in EBITDA. The move prompted investors who mainly purchased the company shares to profit from a rise in dividend yield, to sell their holdings, leading to more than 10 percent decline in share prices within three days of the announcement.
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Dividend Trend (Source: Company Reports)
The woes for investors who used to look at BHP to make a quick buck on the back of high dividend yield did not end there. In August this year, the company announced full year FY 16 results with total dividends per share for 2016 being cut to 30 cents per share, sharply lower from the 124 cents paid a year earlier.
One look at the latest result and the picture is clear that BHP Billiton has gone through a rough patch in 2016 given the commodity price volatility. One of the world’s largest mining company in terms of market value reported a loss of $ 6.4 billion for the year ending June 30 2016. Underlying profits were sharply lower at $1.2 billion from $6.4 billion, a sharp decline of more than 80 percent from the previous year. The losses suffered by the company were the most since the merger of BHP Limited & Billiton Plc in 2001. According to the CEO, the major portion of the $7.7 billion in charges and write- downs were a result of the company booking a one- off charge following the collapse of a dam at the Samarco iron ore site in south east Brazil, in which BHP was engaged in a joint venture with Vale.
The global growth outlook for the rest of the year is expected to remain modest while there has been a boost from some recovery in commodity prices for miners including BHP. While global growth is expected to remain between 3 and 3.5 per cent in 2017, the global trade is expanding at a slower pace compared to the global GDP growth. Going forward, the company is expecting a mixed outlook for metals with prices of steel looking positive on prospects of renewed demand from China as the building industry in the country rebounds. Given the backdrop, the company might revert to its previous position in terms of dividend payments once macro factors start supporting the performance.
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