Despite the bumper dividend, here’s why the BHP Billiton (ASX:BHP) share price is going backwards

4497

BHP Billiton Limited (ASX:BHP) has delivered.

– Underlying profit up 33 per cent to $US9.6 billion.

– Full year dividends per share up 42 per cent to US118 cents, or around $1.60 in Australian dollars. The final dividend of US63 cents per share was a record, just eclipsing the 2014 final dividend of US62 cents.

– Net debt is at the low end of the target range at $US10.9 billion. And that’s before the $US10.8 billion proceeds from the sale of the company’s shale oil assets to BP, which BHP reiterated it expects to return to shareholders in due course.

It’s the mining boom 2.0, in full swing.

The market reacted by sending the BHP ASX share price down 56 cents or 1.69 per cent to $32.61.

Tough crowd.

At its current price, BHP shares trade on a fully franked dividend yield of 4.9 per cent, or 7.0 per cent when grossed up for franking credits… not that cash payments for excess franking credits might be around for too much longer, given Labor’s odds of winning the next election just shortened following the Liberal party’s self destruction.

But I digress…

I’ve long been calling BHP shares a dividend play, believing this mining cycle has got further to run.

While BHP’s record final dividend is making the headlines, it was in line with expectations. You rarely get extra credit for simply hitting your target.

Is this as good as it gets for BHP Billiton?

Looking ahead, the market is wondering if this it as good as it gets for BHP Billiton.

The company didn’t do itself too many favours, saying it sees near-term uncertainty in the forms of policy uncertainty, moderating growth and mixed sentiment.

And that was before the Liberal Party’s leadership spill!

Longer-term, and naturally BHP Billiton is more optimistic. Growth in population and wealth. Increased technology. Decarbonisation and electrification. New demand centres and themes.

All that is well and good, and under CEO Andrew Mackenzie, BHP has a good track record of success.

$40 for BHP Billiton shares now looks a stretch

But the market can’t see beyond the end of it’s own nose, and that means it’s looking ahead to FY19.

It sees BHP guiding for flat volumes in FY19. Free cashflow of $US9 billion, down from $US12.5 billion this year. Capital expenditure of $US8 billion, up from $US6.8 billion this year.

All metrics moving in the wrong direction.

BHP Billiton shares have had a great run, up almost 27 per cent over the past 12 months.

But the run looks to be over, for now, given the modest FY19 outlook.

I’m on record as saying the BHP Billiton share price could hit $40 by the end of 2019. That’s now looking a stretch.

In the meantime, sit back and enjoy the dividends, and the franking credits, while you can. For capital appreciation, there are better options.

BHP Billiton shares don’t look cheap, but these 3 shares do…

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

BHP Billiton was not one of them, but the list does include one tiny gold mining stock, and the company one top fund manager calls the cheapest stock in the ASX 100.

Find out why these 3 Cheap and Good Stocks could be better buys than BHP Billiton. But you better hurry… these stocks may not stay cheap for long.

See the 3 stocks

Read Next

Here are 6 of the best dividend stocks on the ASX for 2018 and beyond

Here are 10 ASX 200 shares to beat the traditional blue chips over the next 3 years

5 ASX blue chip shares for 2018 and beyond

Top fund manager names this iconic company as “the cheapest stock in the ASX 100”

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au