Switzer Super Report expert Charlie Aitken almost “feels sorry for BHP”. Aitken was presenting in our recent Q&A session on the topic: Finding value in battered blue chips.
It certainly has been a tough recently for the miner, but as Aitken notes, the Samarco damn disaster was out of its control and just exacerbated a bad situation in the market. Aitken “never dreamt BHP Billiton could be trading at $18”.
Well BHP fell to $17.05!
BHP Billiton (BHP)
Source: Yahoo!7 Finance, 10 December 2015
The broker report on FN Arena currently has 3 buys, 4 hold and one sell on BHP.
Last month, Switzer Super Report expert Paul Rickard took a look at how to play BHP and noted that shares could be trading the $18 price levels. At those prices, Paul said he would consider adding to his portfolio.
Peter Switzer also sees the price falls as buying opportunities. Buying the stock at $18 or $20 is still a bargain play, after all the long-term growth outlook for the demand for energy should support further price rises of BHP in the future – a point that has been made often by Peter.
While BHP is not in Charlie’s portfolio, the share price has sparked his interest and is keeping watch on the global miner.
“BHP is very cheap at the moment but given where commodity prices are (that is falling) I would still prefer to keep a watch on the stock,” Charlie says.
BHP’s much lauded progressive dividend policy is proving to be a bit of a noose around its neck. Paul already had doubts over the miner’s commitment given earnings pressures, falling commodity prices and now the Samarco disaster.
Banning the dividend policy will be a good decision for BHP, according to Charlie and he reckons the “whole world would see it as a positive step for the miner.”
“Paying a dividend you can’t afford is foolhardy. I believe they should move to a payout ratio of say 50% of the after tax profit in good times bad times and in different times.
“The share price would be rated a lot higher than it is today,” he says.
Even if the dividend is halved, superannuants are still getting an OK deal. Let’s look at the number. Last year’s dividend was 124 US cents per share. Using Wednesday’s closing price of $17.16 and an exchange rate of 0.72 cents, maintenance of its progressive dividend would see BHP trading on a yield of 10.%, grossed up to 14. 3%. If the dividend is halved, yield would by 5% grossed up to 7.1%.
Still not too shabby given the paltry cash rate available to retirees.
Hit the road Jac
Charlie also believes it’s time for the “largely invisible chair” Jac Nasser to leave, a call already made by Paul in his article for Swtizer Daily, Time to Go Jac.
Beyond resources, Charlie does not have much interest for Santos and Origin, even if their prices bounce back.
“LNG reminds me of iron ore given massive oversupply and falling prices,” he says. Even Woodside does not appeal to Charlie given that remains a high-cost producer outside of Gladstone.
“The one thing that really interests me now is BHP.”
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