SYDNEY/MELBOURNE, Nov 13 (Reuters) - BHP Billiton shares struck a seven-year low on Friday, their weakest since the global financial crisis, on mounting concerns it may ditch a policy of paying ever higher dividends.
The world’s biggest mining company has been hammered by sinking commodity prices, a situation made worse by last week’s Samarco mine tragedy in Brazil, where millions of dollars in fines and penalties are beginning to emerge.
BHP stock tumbled more than 3 percent to A$19.81 in early trading, more than double the fall in the broader S&P/ASX 200 , and was on track to fall more than 11 percent for the week, it’s biggest weekly fall since 2008.
BHP has been upping its dividend payout annually under a “progressive” dividend policy that’s endeared the company to investors.
However, mining analysts are speculating this could soon come to an end as market forces and unexpected costs start to overwhelm the balance sheet.
“We’ve been bemused for some time at the lack of share price depreciation in light of the deteriorating earnings profile for the group and we’ve been skeptical for many months about the dividend policy of the company, ” said Ben Lyons, a portfolio manager at ATI Asset Management.
“It’s interesting to see how things have played out reasonably rapidly. Brazil was certainly one of the major catalysts,” said Lyons, whose firm holds an underweight position in BHP shares.
Goldman Sachs this week said BHP needed to cut its dividend in half to get it down to a sustainable level.
UBS is forecasting a near 50 percent fall in BHP’s fiscal 2016 net earnings to $3.3 billion, about half the $6.49 billion the company paid out last year on dividends.
The progressive dividend policy is expected to be a key topic at the company’s annual general meeting in Perth, Australia on Nov. 19.
A legacy of Australia’s now-busted mining boom, it has raised the risk that future dividends will need to be funded by debt.
“That’s certainly possible in the short term but it’s not a sustainable policy for any company to pursue, particularly one that’s exposed to cyclical commodity prices,” said Lyons.
Iron ore, BHP’s main source of income, was sitting at $47.80 a tonne .IO62-CNI=SI on Friday, a few dollars off this year’s low, while copper is at a six-year low and oil is also weak.
Brazilian president Dilma Rousseff, meanwhile, has announced preliminary fines of $66.2 million after two dams burst at BHP’s 50 percent owned Samarco iron ore mine in southeastern Brazil, killing at least seven people, and said further penalties could be imposed. (Editing by Richard Pullin)