Pressure on cashed-up BHP to boost dividends and buybacks

Barry FitzGerald

February 12, 2011

LIKE Rio Tinto before it, BHP Billiton is expected to succumb to investor pressure for a greater share of its bonanza profits to be returned in the form of increased dividends and share buybacks.
When it comes to a share buyback, BHP is expected to at least double the $US5 billion ($A4.9 billion) share buyback unveiled by Rio on Thursday with its report of a record underlying profit of $US13.9 billion for (calendar) 2010.
BHP's profit report for the December half will be released on Wednesday morning. While analysts had previously been tipping a $US5 billion buyback, that has now been cranked up to at least $US10 billion.

That was mainly due to the surprise factor in Rio's buyback. The thinking was that if Rio's view of the world and the prospect of its swollen cash flows continuing for the forseeable future supported its $US5 billion buyback decision, then BHP has to be good for at least a $US10 billion buyback, plus a sweetening of its interim dividend.
BHP's interim profit report is expected to put it well on to posting corporate Australia's first $US20 billion for the full June year.
The anticipated result for the June year of more than $US21 billion would represent a 68 per cent improvement on the $US12.7 billion posted for 2010 full year and would comfortably exceed BHP's previous best of $US15.39 billion in 2008.
Should BHP next week ''disappoint'' the market by not coming out with a $US10 billion-plus buyback and a dividend sweetener (Rio's annual dividend was 20 per cent higher than it had previously indicated), there will be an immediate suspicion that BHP is planning a mega-acquisition in the near-term, most likely in the oil and gas sector.
Following the failed $US40 billion takeover bid for Canada's Potash Corp in mid-November, BHP reactivated the remaining $US4.2 billion buyback of its London-listed shares from the $US13 billion buyback that was put on ice in late 2007 when it made a bid for Rio Tinto, which also failed.
Citigroup analysts have said that with forecast annual earnings before interest and tax of $US40 billion for the next four years and its notional debt net position, BHP has the ability to continue spending $US15 billion annually on capital expenditure. At the same time, it has the means to allocate $US5-$US10 billion annually to share buybacks and $US5-$10 billion annually to smaller acquisitions.
Goldman Sachs predicts BHP will announce a $US10 billion buyback next week, split 60 per cent in Australian listed shares and 40 per cent in the UK market.

Pressure on cashed-up BHP to boost dividends and buybacks