The big news this week was the first half result for BHP; it was however a touch softer than expected, but still a record.
BHP reported a 68% increase in first half profit giving it a record profit of US$9.6bn for the period.
The iron ore and coking coal in particular shone, offsetting a wallowing aluminium division and weak manganese. Oil and copper were also important.
The slightly softer than expected were due to higher operating costs for coking coal and aluminium - Queensland floods exacerbating the former - and weak manganese prices. Aluminium in particular is sensitive to higher fuel and energy prices and has subsequently suffered.
BHP declared a fully franked US46cent interim dividend, a 10% increase and just above our US45cent target.
Shares trade ex-dividend on March 7 and payment is March 31.
We can see the argument for Australian resident shareholders being under whelmed by the paltry 27% dividend payout, particularly given the foregone franking.
However, BHP is putting profits back into the business with;
• The expanded US$10bn capital management initiative to be completed by end 2011
• The company will consider both on and off-market purchases with the total equating to around 4% of issued capital at the current share price.
• It has earmarked US$80bn for major project development, including iron ore and metallurgical coal, over the next five years.
With a price target around $52, this is a stock to watch and look to buy on weakness.
For more information on BHP please contact us on 07 4771 4577.