As part of my process towards increasing and sharing my passive income, I post my trading activity for my dividend growth portfolios. As such, this past week on November 3th, I purchased 65 shares of BHP Billiton plc (BBL) at $51.70 per share, giving me a cost basis of $51.78 per share net of commissions. This was my first purchase of BBL, and the purchase was made in my Roth IRA.
BHP Billiton plc is a diversified natural resources company with resources allocated to Petroleum and Potash, Copper, Iron Ore, Coal, and Aluminum. This past year, BBL announced they would be demerging some of their metals and mining operations. This divestiture will streamline BBL and allow them to focus on higher margin operations in the segments just mentioned. The new company, listed on the Australian stock exchange will be focused on the Aluminum and other metallurgical operations currently house in BBL. Based on the company’s fact sheet for the new company, investors in BBL will receive one for one ratio of shares in the new company.
While I haven’t decided whether or not I will hold the shares of the divested company (might depend on if TradeKing allows for a holding on an international exchange), what I am primarily interested in is the core business of BBL and the one I will own after the demerger.
Since announcing the demerger in mid-August, share prices of BBL have plummeted over concern for what the financial performance of the new companies will look like. From a high of 71.44, this has been a drop of almost 30%. So while the overall earnings forecast should not materially change, buying in pre-demerger allows investors the opportunity to capitalize on a price that is adjusted for future reduced earnings for the slimmed down BBL. However, given the better margins of the existing assets, and tremendous cash flow of the company, I am comfortable opening a position at this time. Check out the chart below to see how their price has dropped over the last five months.
BBL Trade Details
After maintaining a fairly concentrated portfolio over the couple of years, the last few months have helped to diversify and absorb some of the risk associated with such a small and condensed portfolio. Just over the past couple months, I’ve added substantially to my Loyal3 portfolio, which is all consumer goods, and purchased shares of General Electric and Deere & Company, both Industrial sector stocks. This is my first purchase in the ‘Materials’ sector, although given the impending demerger, BBL could really be classified as a split company between Materials and Energy, given the size of their Oil and Coal production. For my allocation purposes, I will maintain their classification in the Materials sector.
BBL is a Dividend Contender, having raised their dividends for 12 consecutive years. Management has already expressed commitment in at least maintaining, if not growing the current dividend, even after demerging a substantial piece of their business. With their latest dividend increase raising their annual dividend from $2.36 to $2.48 per share, my purchase of 65 shares carry a yield on cost of 4.79%. Over the last five years, BBL has a dividend growth rate of 10.6%. This purchase adds $161.20 to my forward 12-month dividends, bringing me up to $1,917.71 of total forward 12-month dividends. BBL pays its dividends twice per year in March and September.
What do you think about this purchase? I know some folks in the DG community have picked up shares of BBL as their price has tumbled over the last few months.