Friday, May 23, 2014

Stock Analysis - BHP Billiton ADR (NYSE: BBL)

I have been watching BHP Billiton (BBL) for a while and thought I'd do some research and analysis of the stock to determine if I would be interested in initiating a purchase of some shares in the near future. Below is a summary of what I found:

BHP Billiton (BBL) is a natural resource company. With more than $60 billion of annual sales, a diverse global footprint, and nine separate businesses, it focuses on: energy, steel inputs, and a broad array of industrial metals. BHP Billiton is headquartered in Melbourne, Australia and was formed in 2001 through the merger of Broken Hill Proprietary Ltd. of Australia and Billiton Plc. of Great Britain.

Recently, BHP Billiton reported a 65% increase ($11.9 billion) in operating cash flow and a 25% reduction in cash outflows from capital and exploration expenditures thus leading to a $7.8 billion increase in free cash flow. Results were driven by continued cost cutting and strong production growth of 10%, particularly in iron ore, coal and copper. And an underlying capital return of 22%. Despite broader weakness in commodity prices, BHP continues to perform very well. Looking forward, BHP expects production growth of 16% over the next two years.


Dividend Growth / Yield - BHP Billiton has been growing their dividend now for 13 consecutive years since the 2001, when the company was formed. The company pays semi-annual dividends that are paid out in March and September.  The last dividend they paid in March of this year was $1.18 per share.  At the close of market on Friday, May 23rd 2014, shares of BBL stock traded for $65.43.  This gives the stock a current dividend yield of 3.60% (2.36/65.43).

The company’s most recent dividend increase was only 3.5%.  A little small but still an increase nevertheless. The dividend has still grown at a 18% compounded annual rate over the past 10 years. More importantly, the $6.3 billion dividend commitment is comfortably covered by internal cash flow. 

Outstanding Shares - It appears that BHP Billiton has kept outstanding shares even for the past few years. Although seeing a decreasing trend in the amount of shares outstanding is preferred, it is equally nice to see BHP Billiton has not done anything to dilute their shares. Since 2011, the outstanding shares has gone from 2,770mil down to 2,673mil. This data is nothing impressive, but its not negative either.  
Dividend Payout Ratio - BHP Billiton currently has a dividend payout ratio at roughly 43%. The company essential uses less than 50% of its earnings to maintain its current dividend. The lower payout ratio gives me confidence in the safety of the dividend for years to come.
Price/Earnings Ratio - BHP Billiton has a P/E of approx. 11.72. Ideally, a P/E average around 15 is preferred. From the P/E ratio alone, BHP Billiton appears attractively valued at the moment. However, I wouldn't place too much emphasis on P/E because it may not always be reliable.
Valuation - BHP Billiton is currently trading at -4.08% below its 52-week high.  The stock is trading around 12 times the fiscal 2014 earnings estimate.


The following is a list of things that could affect BHP Billiton's ability to perform:
  • A sharp decline in commodity prices (primary risk). So far, in first half of 2014, commodity prices has exhibits relative stability.
  • An economic or financial crisis, especially in emerging markets such as China.
  • A weakened US economic recovery.
  • BHP Billiton has historically grown through acquisitions. If the company overpays for an acquisition, it could impact returns.
  • Upcoming maturities of net debt which currently stands at $27.1 billion. But with improving operations cash flow, the net debt is expected to decrease to $25 billion by the end of fiscal year 2014.


I like BHP Billiton and think it is a decent value for long-term investors. While I strongly believe that the company is committed to annual dividend growth, I only expect a modest future growth rate.  With that said, I think I am going to continue to watch BHP Billiton ADR (BBL) and wait for a dip before I initiate a purchase.  I like the stock just below $60.00 and have set an price alert aligned with this sentiment.

Disclosure:  I don't own any shares of BBL nor do not intend to purchase this stock in the next 72 hours. Click on the following link if you would like to view my dividend stocks portfolio.


  1. AFFL,

    BBL is definitely a well run company. I made a couple purchases early this year when it was around 60. BBL along with Shell have really jumped in the past few months. The dividend looks rock solid and I'll probably be buying more shares in the near future. On another note, the Shell b shares have come down recently. That might be another company you could look into.


    1. Thanks for stopping by. I have my eye on BBL and will definitely look into Shell B shares as you suggested. Enjoy the rest of your holiday weekend. Cheers!

  2. I like BBL and am considering it as an exposure to Materials sector. The sector has lost the preference of the media in general for a while, so this might not be a bad time. I wish I had some free cash for more investing.

    I like your Dividend Stock Analysis and the enumerated points on the Potential Risks. Keep it up!


    1. R2R - Thanks...I am trying to grow my followers so your feedback is greatly appreciated. As for BBL, I hope to own some stocks in the company soon. I'm just waiting for a more attractive entry point.

      Best Wishes - AFFJ