Trades – BHP Billiton (BBL) Purchase

BHPBillitonLogo

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.

Trades - Purchased BHP Billiton - BBL Chart

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.

My Dividend Growth Portfolio and 2014 Dividend Calendar have been updated for this purchase.

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.

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Comments

  1. W2R,

    Nice buy! Going in hot and heavy. I like it! :)

    I think BBL is a strong value here. I didn’t plan on it being a large part of my personal portfolio, but it’ll be tough for me to ignore it going into December if it stays like this.

    The P/B is at a historic low and the yield is near a historic high. The drop in the stock’s price assumes the new company will be worth nothing, or actually less than nothing. Of course, iron ore has dropped substantially in the interim as well.

    Glad to be a fellow shareholder!

    Best regards.

    • Haha hot and heavy indeed. Given the lack of strong options in the Materials sector, I went for a larger buy, assuming I won’t add to this area in the near future. I believe in BBL, before and after the demerger, and am happy to absorb the value offered by those assuming the spin off will have zero worth.

      Appreciate you stopping by and for your comments, DM!

  2. roadmap2retire says:

    Nice pick, W2R. Its definitely high on my list of companies to buy. Wish they paid their dividends quarterly.

    cheers
    R2R

  3. Wowzers! Nice amount of capital to put to work here! I like this investment a lot, and while I don’t own any companies in the materials sector; if I did it would be BBL. Congrats on the huge increase to the forward dividends too, you’re inches from 2k and I’m officially challenging you to get there by the end of the year! Excellent job!

    • BBL is a strong company, and while the demerger is big news, I plan on leveraging those assets to likely invest further into BBL, building the position even further.

      Certainly the $2,000 mark is a nice accomplishment, and I’m looking forward to blowing through it and then some. I appreciate the support and thanks for commenting!

  4. W2R,

    Wow! That is a strong move into what I believe is a super value. In a market that is flying high it is hard to find decent buys. Great job.

    MDP

  5. Very nice buy of BBL! I like the value here and the YOC. BBL was actually, and is still, on my watchlist. I’ve noticed a few others pick it up as well, with good reason. However, I decided to buy BP this week, as I wanted to take advantage of the weakness in oil and some bad press of late. I’ll be looking at BBL in the coming weeks to see if I may make a move. Thanks for sharing!

    • Glad to see it is on the watchlist. I hope it works out for you in the near future and you can utilize your capital in the coming weeks to open a position.

      Thanks for you support and comments SAD!

  6. W2R,
    BBL is attractive and getting a lot of attention from dividend growth investors lately, it’s in my watchlist as well. Goodluck on your purchase.

    • FFF, certainly BBL has been popular, however, I’ve been watching since they were up in the 60s and coming down. I think they’ve plateaued at this point, and am glad to have entered a position when I did. Thank you for your support!

  7. W2R,

    What a coincidence! I just added BBL to my watchlist and will likely be picking some up early next week. Glad to see you think it is well-valued too. I’m also looking at picking up either CAT or DE. In fact, given the nature of the business, BBL and CAT are probably very interconnected.

    Scott

  8. Very nice buy. I’ve been looking at BBL for a while now but haven’t pulled the trigger yet.

  9. Nice buy W2R, we also own BBL. At current prices, I can certainly understand why you bought as many shares as you did. We are thinking of adding shares…maybe later this month or early December.

    BTW…congrats on reaching 2k! Keep up the great work…best wishes. AFFJ

    • It was a strong move into a position, but I am confident that their is some long-term value here, even given the impending demerger. Glad to be a fellow shareholder!

      AFFJ, thank you for the support and enjoy your weekend!

  10. Great buy! I bought my first shares recently and I am thinking about adding a little more. The basic materials sector has been a hard one for me to find good value in. Or more importantly, businesses that I can understand well enough to invest in!

    Almost to 2k! Keep it up man!

    Take care!

    • That is the nice part about BBL, a fairly simple means of generating the bulk of their revenues. I like the focus on the higher margin segments, and believe that it opens things up for some long-term growth.

      Enjoy your weekend and thank for for stopping by!

  11. Nice buy W2R,

    I bought 20 for $52 on friday. As for the spin off, I heard the primary listing will be in Australia with secondary in South Africa. I heard they were entertaining a secondary on LSE. I wouldn’t mind having 2 companies paying dividends. Iron is weak now but China can only slow down for so long.

    • Good to have you as a fellow shareholder Jack. Certainly, it will be interesting to track how the demerger actually happens and what sort of dividends, if any, that the new company would provide. Worse comes to worse, cash out on the new company and roll those dollars back into BBL or another dividend growth candidate.

      Thanks for stopping by and commenting!

  12. I was actually looking at BHP myself W2R. Nice buy, I may soon join you. Out of curiosity, was there a reason you picked BBL shares over BHP? I hadn’t paid much attention to the different types. Have a great weekend
    -Bryan

    • Bryan, the reason I picked up BBL shares over BHP is that BBL trades at a discount to BHP, and pays out its dividends in US dollars without the mandatory 15% withholding that BHP requires as an Australian entity. A great summary for investors deciding between the two can be found on Joshua Kennon’s site: BHP vs BBL for Investors in the US

      Hope that answers your question!

  13. I think this is a great example of irrationality of general investors out there. As a holder of the stock what would change for you by the spin off? I don’t think much; and yet investors started selling the stock like crazy. I think, after the spin off, this will be a great opportunity.

    • I think some investors are concerned due to the uncertainty surrounding the demerger. The existing company will be much more energy focused while the mining assets are spin out into the new company. Of course, explaining how the market works is a fools game, and not something I could even pretend to do. Certainly the drop in price has provided investors a wonderful opportunity to get in fairly high yield for a quality company.

      Thanks for sharing your thoughts Martin!

  14. I think that’s a great investment W2R, and a great price to buy at. I own some of BHP’s Australian shares (ASX:BHP) which I bought a few years ago, and am certainly tempted to add to my position now. Great business, with some of the lowest cost mines in the world, and will really do well when commodity prices start moving up again – perhaps I’ll move this to the top of my watchlist for next week and see how we go!

    Cheers,

    Jason

    • Jason, glad to be a fellow owner of the same underlying assets! The cost of their mines is really unbelievable when comparing to competitors. I am very intrigued to see how the new company fairs, and am looking at it as almost a bonus to buying to “main” company. As you’ve suggested, once commodity prices rebound, it will be an interesting investment and one where some solid growth will hopefully be found.

      Thanks for stopping by, glad to have you as a reader!

  15. Hi

    Love the buy, I already own BHP Billiton, and added more recently at a 20% lower price (gives me an even better income). I also may look to add more if the remain at current levels or drop further.

    I believe the new company will also be listed in UK, maybe they will also create ADR’s to allow you to hold the new stock.

    Best Wishes
    FI UK

    • I believe the new company will actually be an Australian listed company, which will have an impact on those who hold positions with brokers that don’t allow trading on foreign exchanges. If I cannot hold onto the shares of the new company, I will likely reinvest the money into BBL, however we will cross that bridge when the time comes.

      Thanks for stopping by and I appreciate you reading.

  16. Hi, W2R.
    I’m a big fan of the purchase. Congrats for capitalizing on what appears to be short-term softness in a quality name. I’ve been riding VALE down the slope over the past three months or so and would much prefer to be in BBL. Happy Investing!

    Goosemann Jones
    Flight to Dividends Blog

    • Happy to capitalize when I can, but long-term it is all about putting capital to work in an efficient and rapid manner. If BBL is where you’d rather be, than switch!

      Thanks for stopping by and best of luck.

  17. Of all the mining majors, BHP /BBL is one of those I’d consider given its diverse portfolio of assets. I’m a little cautious about where iron ore pricing may end up, but if anyone should make out well it should be BHP/BBL and Rio Tinto given their low cost operations. Good luck with the purchase!

  18. Thinking of picking up more around this ~$36 range? Approaching a 7% dividend yield at these prices.

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