This is just a follow-up on BHP Billiton and its dividend policy, I wrote last October 2015,
Does the company have a reassuring and stable source of cover? BHP Billiton is considering taking on debt in the short-run to cover its policy of increasing dividend payouts each year.
Is taking on debt to pay dividends a good move, even if it’s just for the short run? There will be differing opinions on this, such as what the optimal capital structure for each firm commensurate with the underlying business risk should be, but this is a question that should be asked.
From the WSJ today,
BHP’s share price has plunged by 40% over the past three months, and it is now under pressure to cut its dividend to shore up its balance sheet.
“BHP is being penalized by investors for the uncertainty over its dividend policy,” said Pengana Capital fund manager Ric Ronge, calling it a “more pressing issue that management has to address.”
“Its dividend payout isn’t really reflecting its earning ability,” he said.
Barclays forecasts the miner will be forced to cut investor payouts by half.
From the Financial Review,
While BHP still has some flexibility to cut capital expenditure to ease cash flow, it will revive calls for chief executive Andrew Mackenzie and the board to review its policy of increasing dividends at a time when many of its rivals are slashing shareholder returns.
From the BBC,
Some have also called into question the miner’s policy of holding or raising its dividend at every result, and there is speculation BHP might have to cut its payouts to shareholders.
Ratings agencies Moody’s and Standard & Poor’s have both warned that the company’s dividend policy poses a risk to its credit rating.
And finally, from the FT,
BHP said it would significantly reduce output from its US fields, cutting the number of rigs to five from 26 a year ago.
The change highlights how the environment in the US shale sector has soured for BHP, which had previously emphasised its sharply reduced operating costs and the flexibility of its US business compared with its longer-term mining operations.
The sharp downturn in the oil sector increases the likelihood that BHP will make an unprecedented dividend cut, perhaps as soon as next month when the group is due to announce its results for the first half of its financial year.
BHP has not cut its progressive dividend since its merger with Billiton in 2001. But payouts have been slashed across the mining sector as the commodities slump has wreaked havoc with miners’ ability to reward shareholders.