Companies across the resource and energy sectors are praying for better days. But BHP Billiton [ASX:BHP] is more troubled than ever.
Their performance has been downhill since 9 October. BHP’s share price has been dancing around the $20 mark. That idea would’ve been unthinkable to most analysts not too long ago.
BHP hasn’t been this low in 10 years.
BHP is still feeling the shocks of the Brazilian dam disaster. The result of which have put a major restriction on their iron ore inventories. And cost hundreds of millions in managing the restoration of communities. This is only the start of BHP’s troubles.
What’s the real problem?
The continual decline in commodity prices has hurt BHP the most.
Commodity prices have fallen more drastically than anyone could have predicted. From the chart above it’s easy to see why big resource companies like BHP are struggling. Since 2011 we’ve seen a downwards trend in commodity prices, and it doesn’t seem to be getting better.
Overnight copper prices declined 2% along with other metals also taking a hit. Analysts are beginning to believe the slump in commodity prices will force BHP to cut its dividend payments.
What does this mean for dividends?
There were concerns raised on Monday about BHP’s ability to fulfil their progressive dividend policy. A progressive dividend policy just means dividends are expected to rise in line with increases in earnings per share.
In order to pay dividends, BHP is planning to raise $2.35 billion. Some analyst believe that may need to be revised up. UBS analyst Glyn Lawcock told his clients ‘if current prices persist, we expect the board to reduce the dividend to preserve the credit rating’.
Mr Lawcock is not alone. Andrew Hines, Commonwealth bank analyst, stated ‘it is also possible the cut to dividend is much larger than expected. BHP may decide to change the dividend policy to a payout ratio’.
It’s definitely not a great time to be a BHP shareholder. If commodity prices continue their trend it may lead to dividend cuts and another drop for BHP’s share price.
Contributor, Money Morning