BHP Billiton: Undervalued Basic Materials Dividend Stock

Looking for undervalued dividend paying stocks?  Like many Basic Materials stocks, BHP Billiton PLC, (BBL), has been under pressure in 2012, due to slowing growth and tightening financial policy in China. However, the Chinese government has begun loosening its policies, in order to keep growth moving near their targeted 7.5% GDP rate, which should help Basic Materials stocks such as BBL regain some of their luster.

BHP Billiton was formed in June 2001 from the merger of BHP Limited (an Australian listed company) and Billiton Plc (a UK listed company). The merger was effected by way of a dual listed companies  structure, meaning that although the companies technically continue to be separate legal entities, now renamed BHP Billiton Limited, (BHP), and BHP Billiton Plc, (BBL), with separate share listings and share registers, they are managed and run as a single economic entity. The companies have a common Board of Directors and management team. Shareholders in BHP Billiton Limited and BHP Billiton Plc have equal economic and voting rights, as if they held shares in a single company.

Here’s a breakdown of BBL’s various mining and energy segments, as of its last report, on 12/30/11. The company greatly expanded its petroleum production in 2011, with its acquisition of Petrohawk Energy, which is active in the Fayettville shale oil and gas area. BBL is a world leader in many of these commodities:

Undervalued Growth: BBL, whose fiscal year ends 6/30/12,  looks undervalued on a PEG basis for 2012 and 2013:

BBL reports semi-annually, and has had earnings which outperformed its peers over the past 5 years, but it had a mild earnings stumble for the last 6 months of 2011:

BBL’s Price/Book and Price/Sales also look cheaper than its peers.

Dividends: With its 4%-plus dividend yield, BBL is listed in the Basic Materials section of our High Dividend Stocks By Sector Tables. One US ADR of BBL equals two Australian shares, so, BBL’s interim dividend of $.55 actually paid out $1.10 per US ADR share. BBL pays dividends twice a year, with ex-dividend dates typically in early September and late February-early March. BBL increased its semi-annual dividend in Feb. 2012 by 20%, to $1.10, from $.92. Indeed, BBL has been one of the best stocks to buy for dividend growth, with a 5-year dividend growth rate of 23%:

Covered Calls: BBL’s December $60.00 covered call options offer nearly 3 times the next dividend payout, and a nearly 20% potential assigned yield, which should ward off getting assigned before the ex-dividend date in September. (More info is listed in our Covered Calls Table, which has over 30 other trades):

Cash Secured Puts: BBL’s September $55.00 puts have higher options yields, since they’re in the money, (above BBL’s stock price). This put option trade gives you a breakeven that’s below BBL’s 52-week low of $49.90.
 
Financials: BBL’s Financial metrics outshine its peers, with the exception of slightly higher debt levels:

Technical Data:

Disclosure: Author had no positions in BBL or BHP at the time of this writing.

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.