ii view: BHP rewards shareholders

Miner BHP pays a record final dividend, but economic prospects for the US and China inject caution.

Full-year results to 30 June 2019

• Revenue up 2.7% to $44.3 billion  
• Adjusted profit (EBITDA) unchanged at £23.2 billion
• Final dividend up 23.8% to 78 US cents per share
• Total dividend payment for the year of $2.35 per share (standard: $1.33 + special: $1.02)

Chief Executive Andrew Mackenzie said:

"Our performance over the past five years has delivered an increase in volumes of 10% and a reduction in unit costs of more than 20% across our major assets. Over the 2019 financial year, underlying improvements in our operational performance were offset by the impacts of weather, resource headwinds and unplanned outages in the first half of the year.

Higher prices and record production from several of our operations contributed to strong operating cash flows. We used that cash to invest in attractive growth projects, advance our exploration programs and increase returns to shareholders. We now have six major projects under development in petroleum, copper, iron ore and potash, following the approval of the Ruby oil and gas development this month. All of them are on schedule and budget."

ii round-up:

Tracing its roots back to the mid-1800s and formed from the merger of BHP and Billiton, today mining and natural resources company BHP Group (LSE:BHP) has a stock market value of nearly £90 billion. 

Its products include iron ore, copper, coal, petroleum, nickel and potash.

Group operations are divided across the five divisions of Minerals Australia, Minerals Americas, Global locations, Petroleum and Marketing. 

For a round-up of these full-year results, please click here.

ii view:

The mining industry is tough and often difficult for managements to navigate. Exploration success, operational issues, staff difficulties, the weather, not to mention trying to second guess the price direction of the commodity being extracted, can all impact financial performance. 

For BHP specifically, a focus on portfolio simplification, cash generation and capital discipline delivering higher cash returns to shareholders, we believe, looks sensible.

For investors, a forecast two-year forward dividend yield of around 7%, not guaranteed, is enticing. A forward price earnings ratio (PE) below the three and ten-year averages catches the eye further. But an ongoing US China trade war and exposure to a cooling Chinese economy, do we believe, provide reason for caution. 

Positives

• Record production from several of its operations
• Exposure to a diverse portfolio of commodities
• Focus on shareholder returns

Negatives

• China's industrial output growth hit a 17-year low in July – a key market for BHP
• Currency movements can weigh on performance
• Operates five tailings dams that could cause severe damage and loss of life if they failed

The average rating of stock market analysts:

Hold