The BHP share price has fallen close to 20% in the last month due to concerns about an environmental disaster at a mine it half owns in Brazil, as well as the risk that the company will be forced to cut dividends
BHP’s progressive dividend policy has been placed under a cloud of uncertainty after chairman Jac Nasser refused to recommit to the policy at the company’s annual general meeting (AGM) held last week. The chairman said the dividend would be reviewed as part of the miner's interim result in February, and that the company’s balance sheet comes before its commitment to an annual progressive dividend.
BHP’s statement at the AGM is a positive message for bondholders, while raising uncertainty for shareholders as to whether the progressive dividend policy can be maintained. If commodity prices continue to remain low, BHP is likely to have to cut its dividend in order to protect its credit rating. While the BHP share price may currently look attractive on a historical dividend yield basis, income investors can no longer view the BHP dividend as fixed with the risk of a dividend cut looking likely.
With BHP committed to maintaining balance sheet strength, we continue to see the BHP fixed rate subordinated bonds as representing good value. Bond prices have remained relatively stable despite the weakness in commodity prices and the exposure to the dam disaster in Brazil.
Please contact your FIIG representative for further information on the BHP subordinated bond.