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Aug
28
John Murphy
Buy BHP at a Discount for the Long Term
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BHP Billiton (NYSE: BHP), the world’s largest natural resources company is down for the last week, month, and quarter of market action (chart below).

As the business of BHP Billiton is natural resources, that means China is its biggest customer.  China is reporting problems in its housing sector as reported by the Financial Times, so companies like BHP Billiton are off, as a result.  Long term investors should look upon this as an opportunity to buy at a discount as the outlook for BHP Billiton is bullish, as detailed in previous articles.

The current decline highlights how profitable BHP Billiton is with a robust return-on-equity, and generous dividend yield.

BHP is more profitable than Apple (NASDAQ: AAPL) or Microsoft (NASDAQ: MSFT).  It is about four times as profitable as the average member of the Standard & Poor’s 500 Index (NYSE: SPY).   It is more profitable than others in its sector, too.

That high profit margin contributes to a high return-on-equity for BHP Billiton.

Legendary investor Warren Buffett looks for a return-on-equity of at least 20 percent.  The return-on-equity measures how profitable all of the investments of the owners is turning out to be in the business.  For BHP Billiton, the return-on-investment is 35.30 percent.

While investors hope that a superior profit margin, and return-on-equity eventually show up in the stock price, for dividend stocks it takes place every quarter.

That makes four times a year that BHP Billiton shareholders benefit much more than those invested in an average company that is a member of the Standard & Poor’s 500 Index.  The mean dividend for a member of the Standard & Poor’s 500 Index is just under 1.9 percent.  For BHP Billiton, it is 3.39 percent.

Coupled with the profit margin and return-on-equity, investors should buy BHP Billiton for the long term on the dips to register a strong total return with the robust dividend yield!

 

 



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