BHP Billiton share price: Miner’s progressive dividend under fire

on Apr 15, 2015
Updated: Oct 21, 2019

BHP Billiton’s (LON:BLT) progressive dividend has been described as a “travesty” and a “bear trap” by one of its shareholders, a day after Standard & Poors (S&P) signalled that the miner could have its credit rating downgraded.

BHP was one of eight iron ore producers which S&P put on a ‘negative credit watch’ on Monday, as the agency drastically revised its three-year iron ore price predictions. S&P analyst May Zhong said that BHP was the best-placed among the outlined companies, but noted that the miner’s progressive dividend policy reduced its financial flexibility.
BHP’s progressive dividend policy, which costs the miner about $6.5 billion a year, aims to steadily increase or at least maintain the dividend at each half-year payment. According to Brad Potter, head of Australian equities at BHP shareholder Nikko Asset Management, the FTSE 100 company has got itself caught in a progressive dividend “bear trap”,but it was unlikely to be able to scrap the policy until the next mining boom, because a backflip would be “embarrassing”.
Potter told Fairfax Media today: “They step one way by maintaining their dividend, underspending on growth and possibly increasing debt, while having an issue with their credit ratings.Or they step the other way and the share price collapses because the stock has been held up the extremely high yield. It’s a bear trap.” According to the shareholder, BHP should adopt payout ratio of 50 percent – when the policy comes up for review – “so in the good times you pay a heap of money to shareholders, and in the hard times you pay less”.
BHP Billiton’s share price fell more than three percent, following S&P’s Monday stance on the group’s prospects. Having recovered from the slump, by 13:07 BST today, the stock had gained 1.44 percent to 1,480.50p.
As of 13:53 BST, Wednesday, 15 April, BHP Billiton plc share price is 1,478.00p.

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