Seeking Alpha
BHP Billiton is a diversified natural resources company and one of the world's largest producers of major commodities, including aluminum, coal, copper, iron ore, manganese, nickel, silver and uranium. BHP Billiton is a dual listed company comprising of BHP Billiton Limited (NYSE: BHP ) and BHP Billiton Plc (NYSE: gidonline BBL ). I'm buying shares in BBL, offered as American Depository Receipt (ADR) shares on the NYSE.
BBL is an existing holding, so I'm adding shares following substantial recent weakness in the stock price. I first initiated a position in June 2013, buying 43 shares at $58.39 per share and with an initial yield on cost (YoC) of 3.90%. With this buy, I'm averaging down to a per share price of $53.72. This time, initial YoC is a very respectable 4.94%.
BBL has traded in a range between $50 and $70 per share for more than three years. In August, the company announced demerger plans , which, along with concerns over the lack of a new buyback program, has sent the stock down about 28% to date. This weakness provides an excellent opportunity to buy more shares.
BBL ranked third on my November dashboard of dividend growth stocks . My fair value estimate for BBL is $64.50, so I'm picking up shares at a discount of about 22%. For comparison, Morningstar 's fair value estimate is $70, while S&P Capital IQ 's fair value estimate is $59. Zacks Investment Research has a target price of $48.40.
BBL passes the following selection criteria: A streak gidonline of at least 5 years of dividend increases (12 years) Dividend yield exceeds gidonline 2.75% (4.94%) Chowder Rule : Dividend yield plus 5-year CAGR exceeds 12% (15.4%) Debt to equity ratio less than 50% (44%) Price to earnings ratio (P/E) is less than 20 (TTM 10.05x and Forward 18.79x) P/E to annual earnings per share growth (NYSE: PEG ) ratio is less than 2 (1.79) 5-year compound annual growth rate ( OTCPK:CAGR ) is at least 10% (10.63%) Reasonable confidence in continued dividend growth (Yes) Price discount is at least 5% of fair value estimate (28.49%)
Based on these statistics, BBL earns 6 stars out of a possible 7: (******- ) Other ratings for BBL Zacks Rank 4-Sell S&P Capital IQ 's Stock Report gidonline (**** - ) Buy MorningStar Rating (****- ) The Motley Fool 's CAPS Rating (**** - ) Dividend Prospects gidonline
BBL has an impressive dividend growth record with a streak of 12 years of increased dividends. Over the past five years, the company has increased its dividend at an annual rate of 10.6%. gidonline The most recent dividend increase, announced on 19 August and paid on 23 September, was 5.08%. At my purchase price of $50.20, BBL yields 4.94%. Presently, the payout ratio is 47.9%. Due to exposure to highly cyclical commodity markets, BBL's results do vary significantly from year to year. Generally speaking, though, earnings are increasing over time and BBL should be able to continue growing its dividend even while earnings fluctuate.
The question is how the announced demerger plans will affect shareholder return. On 27 October 2014, BHP Billiton explained how they plan to maximize value and shareholder returns by reducing operating costs and improving capital efficiency. The company's gidonline CEO, Andrew Mackenzie, said:
"We are confident that our productivity drive will be accelerated by the demerger proposal gidonline we announced in August. A simpler portfolio, focused on our 19 core assets, will retain an optimal level of diversification while generating even stronger growth and margins.
"We see our capital management strategy as a precondition to maximizing shareholder value. It has allowed us to invest through the cycle and grow our dividend at an average annual rate of 17 percent over the last decade gidonline without interruption.
"Our strategy, including our commitment to a strong balance sheet, has worked well for our owners. We have delivered a total shareholder return of 394 percent over the last decade including US$64 billion in dividends and buy-backs. By safely improving gidonline operating and capital efficiency we will maximize value and increase cash returns to our shareholders. gidonline Improving our competitiveness will benefit shareholders and the local communities and economies in which we operate".
So, the proposed demerger could provide a catalyst for shareholder return through increased focus on operating and capital efficiency, while a new, independent company could provide gidonline additional upside by itself. Concluding Remarks
A proposed demerger has created some uncertainty in the market, sending the share price down by about 28%. This weakness provides an excellent opportunity to buy more shares, as BBL still have strong fundamentals.
The demerger, if finalized would result in two independent companies. BBL shareholders would receive shares in the new business. On October gidonline 16, 2014, BHP Billiton confirmed that it will pursue a standard listing in London and admission to trading on the London Stock Exchange for the propo
BHP Billiton is a diversified natural resources company and one of the world's largest producers of major commodities, including aluminum, coal, copper, iron ore, manganese, nickel, silver and uranium. BHP Billiton is a dual listed company comprising of BHP Billiton Limited (NYSE: BHP ) and BHP Billiton Plc (NYSE: gidonline BBL ). I'm buying shares in BBL, offered as American Depository Receipt (ADR) shares on the NYSE.
BBL is an existing holding, so I'm adding shares following substantial recent weakness in the stock price. I first initiated a position in June 2013, buying 43 shares at $58.39 per share and with an initial yield on cost (YoC) of 3.90%. With this buy, I'm averaging down to a per share price of $53.72. This time, initial YoC is a very respectable 4.94%.
BBL has traded in a range between $50 and $70 per share for more than three years. In August, the company announced demerger plans , which, along with concerns over the lack of a new buyback program, has sent the stock down about 28% to date. This weakness provides an excellent opportunity to buy more shares.
BBL ranked third on my November dashboard of dividend growth stocks . My fair value estimate for BBL is $64.50, so I'm picking up shares at a discount of about 22%. For comparison, Morningstar 's fair value estimate is $70, while S&P Capital IQ 's fair value estimate is $59. Zacks Investment Research has a target price of $48.40.
BBL passes the following selection criteria: A streak gidonline of at least 5 years of dividend increases (12 years) Dividend yield exceeds gidonline 2.75% (4.94%) Chowder Rule : Dividend yield plus 5-year CAGR exceeds 12% (15.4%) Debt to equity ratio less than 50% (44%) Price to earnings ratio (P/E) is less than 20 (TTM 10.05x and Forward 18.79x) P/E to annual earnings per share growth (NYSE: PEG ) ratio is less than 2 (1.79) 5-year compound annual growth rate ( OTCPK:CAGR ) is at least 10% (10.63%) Reasonable confidence in continued dividend growth (Yes) Price discount is at least 5% of fair value estimate (28.49%)
Based on these statistics, BBL earns 6 stars out of a possible 7: (******- ) Other ratings for BBL Zacks Rank 4-Sell S&P Capital IQ 's Stock Report gidonline (**** - ) Buy MorningStar Rating (****- ) The Motley Fool 's CAPS Rating (**** - ) Dividend Prospects gidonline
BBL has an impressive dividend growth record with a streak of 12 years of increased dividends. Over the past five years, the company has increased its dividend at an annual rate of 10.6%. gidonline The most recent dividend increase, announced on 19 August and paid on 23 September, was 5.08%. At my purchase price of $50.20, BBL yields 4.94%. Presently, the payout ratio is 47.9%. Due to exposure to highly cyclical commodity markets, BBL's results do vary significantly from year to year. Generally speaking, though, earnings are increasing over time and BBL should be able to continue growing its dividend even while earnings fluctuate.
The question is how the announced demerger plans will affect shareholder return. On 27 October 2014, BHP Billiton explained how they plan to maximize value and shareholder returns by reducing operating costs and improving capital efficiency. The company's gidonline CEO, Andrew Mackenzie, said:
"We are confident that our productivity drive will be accelerated by the demerger proposal gidonline we announced in August. A simpler portfolio, focused on our 19 core assets, will retain an optimal level of diversification while generating even stronger growth and margins.
"We see our capital management strategy as a precondition to maximizing shareholder value. It has allowed us to invest through the cycle and grow our dividend at an average annual rate of 17 percent over the last decade gidonline without interruption.
"Our strategy, including our commitment to a strong balance sheet, has worked well for our owners. We have delivered a total shareholder return of 394 percent over the last decade including US$64 billion in dividends and buy-backs. By safely improving gidonline operating and capital efficiency we will maximize value and increase cash returns to our shareholders. gidonline Improving our competitiveness will benefit shareholders and the local communities and economies in which we operate".
So, the proposed demerger could provide a catalyst for shareholder return through increased focus on operating and capital efficiency, while a new, independent company could provide gidonline additional upside by itself. Concluding Remarks
A proposed demerger has created some uncertainty in the market, sending the share price down by about 28%. This weakness provides an excellent opportunity to buy more shares, as BBL still have strong fundamentals.
The demerger, if finalized would result in two independent companies. BBL shareholders would receive shares in the new business. On October gidonline 16, 2014, BHP Billiton confirmed that it will pursue a standard listing in London and admission to trading on the London Stock Exchange for the propo
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