BHP Billiton Ltd. ADS
| Metric | Q2 2012 | Q3 2012 | Q4 2012 | Q1 2013 |
|---|---|---|---|---|
| Net Operating Cash Flow | $16 | $12 | $12 | $6 |
| Capital Expenditures | -$6 | -$9 | -$11 | -$11 |
| Net Investing Cash Flow | -$10 | -$20 | -$11 | -$9 |
| Cash Available For Financing Activities | $6 | -$8 | $1 | -$3 |
| Cash Dividends Paid – Total | -$2 | -$3 | -$2 | -$3 |
| Issuance/Reduction of Debt, Net | $0 | $5 | $3 | $7 |
| Dividend Cover From Cash Available For Financing Activities | 3.0 | 0.0 | 0.5 | 0.0 |
| Free Cash Flow | $8 | $0 | $3 | $8 |
*Figures in billions of dollars. Financing activities include dividend payouts, changes in capital stock and the movement of debt.
As the largest miner by revenue in the world, BHP Billiton Limited (ADR) (NYSE:BHP) has a certain defensive nature about it. That said, as shown above the company is still struggling to find enough cash to pay its dividend.
BHP Billiton Limited (ADR) (NYSE:BHP) has only been able to cover its payout wholly once during the past four quarters. CAPEX spending and restructuring costs have consumed almost all of the company’s operating cash flow, leaving no room for payouts.
However, the company’s payout was well covered in Q2 2012 before the restructuring, asset divestment and project write-downs began, leading me to believe that the payout will in fact be well covered after the company has emerged from its reorganization.
So overall, I feel that BHP Billiton Limited (ADR) (NYSE:BHP)’s payout is safe.
Verdict: safe
Freeport-McMoRan Copper & Gold
| Metric | Q2 2012 | Q3 2012 | Q4 2012 | Q1 2013 |
|---|---|---|---|---|
| Net Operating Cash Flow | $1,180 | $526 | $1,270 | $831 |
| Capital Expenditures | -$840 | -$971 | -$976 | -$805 |
| Net Investing Cash Flow | -$837 | -$986 | -$926 | -$1,110 |
| Cash Available For Financing Activities | $343 | -$460 | $344 | -$279 |
| Cash Dividends Paid – Total | -$297 | -$297 | -$297 | -$297 |
| Issuance/(Reduction) of Debt, Net | $0 | ($1) | ($52) | $6,500 |
| Dividend Cover From Cash Available For Financing Activities | 1.2 | 0.0 | 1.2 | 0.0 |
| Free Cash Flow | $45 | -$742 | -$8 | -$271 |
*Figures in millions of dollars. Financing activities include dividend payouts, changes in capital stock and the movement of debt.
Last on the list is Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), which offers an annualized yield of 4.2%. Freeport has been able to cover its payout in two out of the last four quarters, which gives me some confidence in its payout.
Having said that, the company’s erratic and unpredictable operating cash flow indicates to me that its income is not predictable enough to commit to the high dividend yield that Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) is currently offering. Furthermore, the company’s recent forced mine closure is going to put even more of a strain on cash flow.
So overall I believe the payout is unsafe.
Verdict: unsafe
Conclusion
Overall, these three mining companies may have caved into investor pressure to start offering dividends, but the nature of the commodity business is unpredictable and a secure dividend payout requires a predictable cash flow. So, although these miners offer yields in excess of 4%, their high yields should be treated with caution.
The article How Safe Are the Dividends of These 3 Miners? originally appeared on Fool.com and is written by Rupert Hargreaves.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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