BHP Billiton

[TheMotorcycleBoy]

Hi,

I'm looking at BHP Billiton now, and noticed that the figures in the annual report and lot of the several free sites are in US dollars.

e.g. https://www.bhp.com/-/media/documents/i ... .pdf?la=en

I did eventually find a website quoting div data in GBP:

https://www.dividendmax.com/united-king ... p-billiton

However I'm curious about the following details:

1. Does the linked PDF look like the correct one to be analysing?
2. Is this company's performance greatly effected by foreign exchange rates?
3. Why did the dividend take a nose dive 83.3p -> 21.7p, between 2015 and 2016?

many thanks
Matt and Mel

[dspp]

M&M,

You do pick some toughies don't you. First a tech-transition stock (Sage), now a hole-in-the-ground miner (BHP).

Always worth getting some background in before you wade into the financial accts (spot what happened in that year ..):
https://en.wikipedia.org/wiki/BHP

Basically you are trying to analyse a macro long-cycle multi-resource cyclical sector with terrible supply-chain whiplash, using a steady-state forensic accts microscope.

If you think that at a macro level resource stocks are likely to be of interest, then one starts to weigh up whether to buy a basket of resource stocks, or whether to try to stock-select the 'best' (on some value term ?, or some yield term ?). I commend your efforts hugely, and I am impressed with your energy & enthusiasm & ability, but I do wonder if you are coming at this backwards, i.e. I personally wouldn't have 'just' dived straight into BHP.

But I'll be very interested to read your take on it. I hold BHP and S32 by the way. Despite thinking that the shale play is a disaster.



regards, dspp

[dspp]

Fortunately I bought at £12.2. Unfortunately I bought in Aug 2015. With hindsight I should have waited three months and got it at half that price. However I bought it as part of a 30-35 share portfolio, with a 5-10 year time horizon, and in the context of a 5-year plan to go beyond that initial portfolio, and that was a deliberate strategy. (my personal strategy has since evolved btw).

***

Before analysing stock it is helpful to understand why one is analysing them, and what they are.

The 'why' boils down to a) the duration one intends to hold them; and b) whether they are expected to give capital growth, dividend stream, or some combination (i.e. TR); and c) whether it is being viewed in isolation or as part of a wider portfolio. This question is about yourself.

The 'what' is intended to answer whether you understand what you are about to analyse. If you only intend to hold it for 1-day you would answer this question very differently than someone with a 10-year view.

>>>> Then you can crack on with your analysis, using the right tools to do the relevant job.

regards, dspp

[TheMotorcycleBoy]

You do pick some toughies don't you. First a tech-transition stock (Sage), now a hole-in-the-ground miner (BHP).

But I'll be very interested to read your take on it. I hold BHP and S32 by the way. Despite thinking that the shale play is a disaster.

I'm basically trying to continue to do what Mel and I set out to do. Find a better place to put our savings, that has more flexibility than just topping out various pensions.

I also believe that by learning about about private investing in general, we will be better positioned than many when the day (?) of retirement eventually comes. If ever....

So really all I trying to do (after trying to refine our strategy post-March when we first started), is find companies that either are

1. in a growing phase and paying hopefully a growing dividend (e.g. BOY, TRI, SPX, AMS, BUR)
2. and mature companies which paying a fatter dividend, *but* where I believe that dividend to be future proof. (As much as possible). (I've looked at DCG, SGE, TATE, GSK to that end) (We already own PSN, MANX, LGEN, NG which I guess kind of fit the bill...).

Always worth getting some background in before you wade into the financial accts (spot what happened in that year ..):
https://en.wikipedia.org/wiki/BHP


If you think that at a macro level resource stocks are likely to be of interest, then one starts to weigh up whether to buy a basket of resource stocks, or whether to try to stock-select the 'best' (on some value term ?, or some yield term ?). I commend your efforts hugely, and I am impressed with your energy & enthusiasm & ability, but I do wonder if you are coming at this backwards, i.e. I personally wouldn't have 'just' dived straight into BHP.

Indeed, thanks pal. But again, my technique contradicts yours!

I'd rather spend an hour or two, lobbing the figures gleaned from 4 years worth of ARs, and then if, it's looks economically fun, then spending spend actually researching more.

Basically you are trying to analyse a macro long-cycle multi-resource cyclical sector with terrible supply-chain whiplash, using a steady-state forensic accts microscope.

Yes, that's useful info. I was thinking that was what BHP was all about.

I haven't followed exactly what materials/resources interest BHP, but an unsatisfied investment goal of ours, would be in the kind of firms that supply and make use of materials pertaining to hybrid/leccy car batteries, solar cells, etc. to state the obvious, are also on our radar.

Matt (and Mel)

[dspp]

M&M,

I'm absolutely cool with your overall goal of 'make money' by parking your savings in a better place. I'm no different than you in that respect.

But which lense are you looking at BHP through ? The one of a growth company (and by-the-way these ordinarily don't pay a dividend, that is a UK virtue-signalling aberation); or the one of a mature company. Because BHP is neither, it is a cyclical company. To understand a cyclical company you need to use cyclical tools and a cyclical lense.

That - in retrospect - is the mistake I personally made when I bought BHP. I got away with my mistake because I had adopted a overall strategy (of which the first phase was a 30-35 share HYP, though bought with a TR intent) that was intended to minimise the risk of any single stock being too important; and which had a time-frame of holding long enough . But nonetheless I made a serious mistake.

I realised shortly afterwards that I had made a mistake. Or more correctly I remembered what I had once known about resource stocks being cyclical. And then I went out and adapted my phase two strategy (which was indented to be index trackers) and seized the over-correction in the downturn and bought heavily into the undervalued commodity of oil. Which has paid off.

I am explaining this because I learnt something from that. Always explain to myself why I am buying something; and what it is I am buying; and how am I analysing it.

Example of my thinking from back then.

I am modifying my phase 2 trackers to move heavily into undervalued commodity oils. My risk will go up as a result. I recognise that there is a risk that oils may stay down for a long time, or even not recover ever (peak oil, renewables), but I think I have enough sector knowledge to discount that for this commodity cycle. I am going to use RDSB (and later BP) as my proxy for the sector. I intend to switch back out of oils at some point when I think the cycle is playing outm perhaps 3-6 years. I am prepared to put (say) 25% of my exposure in this. Now RDSB is currently undervalue dbecause ........ etc.

Must go, lunch calls. Please learn from my mistake of back then. Explain to yourself why you are (maybe) buying BHP.

regards, dspp

[Gengulphus]

I'm looking at BHP Billiton now, and noticed that the figures in the annual report and lot of the several free sites are in US dollars.

That's pretty common for resource stocks: the prices of their products are generally quoted in dollars, so they generally do their accounts in dollars and declare their dividends in dollars. The big ones generally also have arrangements to pay dividends in other currencies, such as euros or sterling. Sometimes with the amounts in those other currencies declared with the results, sometimes later - it depends on the company. I believe they generally do want investors to be committed to which currency they'll be paid in before the exchange rate is fixed - basically because the company needs to actually do the right amount of currency exchange! There can also be interactions with other dividend options, such as investors choosing whether to take part in a scrip dividend scheme.

e.g. https://www.bhp.com/-/media/documents/i ... .pdf?la=en

I did eventually find a website quoting div data in GBP:

https://www.dividendmax.com/united-king ... p-billiton

However I'm curious about the following details:

1. Does the linked PDF look like the correct one to be analysing?

Yes, the first link is to BHP Billiton's 2017 annual report. People might question (and have done so!) whether you ought to want to analyse annual reports, but if you do want to, that's the one to analyse!

I've no idea about the second link, by the way - not a site I've used, and trying it gives me a "Demo Mode" screen. I can apparently get a free account, but I'm not in the habit of providing my details to any website that asks for them and don't plan to acquire such a habit. I've got to have a reasonably good personal reason to want to use the site, and answering a discussion board question isn't enough!

2. Is this company's performance greatly effected by foreign exchange rates?

How company performance is affected by exchange rate basically depends on how the currencies in which its revenues and other incomings are designated perform relative to the currencies in which its outgoings are denominated. E.g. if a company has a mainly sterling-denominated cost base and sells a product priced in dollars, then sterling rising relative to the dollar is bad news for the company and sterling falling relative to the dollar is good news. Precisely the opposite is true for a company which has a mainly dollar-denominated cost base and sells a product priced in sterling.

How significant that effect is depends on how quickly and effectively the company can respond to the exchange rate changes. In particular, if the exchange rate moves against the company, can it put its selling prices up quickly, or is it inhibited by contractual commitments and/or becoming uncompetitive? In cases where it is significant, companies will often 'hedge' their commitments by forward-buying the relevant currencies - e.g. if a company signs a contract committing it to a deal that will bring in $N million for each of the next 5 years and that they expect to have to spend £M million on in each year, with $N million worth a good profit margin over £M million at the current exchange rate, they'll forward-buy £M million worth of sterling for dollars for each of 1 year, 2 years, 3 years, 4 years and 5 years ahead, at whatever rates they can get. That will probably be a bit more expensive, reducing the company's profit a bit (the counterparty to the forward-buying contract has to expect to make their profit) but it cuts out a lot of exchange-rate risk and it's a lot better for cashflow than buying £5M million for dollars right now.

How a specific investor's view of company performance is affected by the currency in which they want to view the company's performance. E.g. offhand I would guess that BHP Billiton's performance is not much affected by exchange rates involving sterling, as most of its revenues will be designated in US dollars and its outgoings will be mainly in the currencies of the countries in which its mines are located (for staff costs, apart from head office costs) or in US dollars (for mining supplies, machinery, etc). With little in the way of mines in the UK, it's probably more-or-less only UK head office staff costs in sterling. I emphasise though that that's a guess - it would need careful looking through the accounts to verify it if I felt so inclined (which I don't, especially as that look would involve analysing BHP Billiton's "dual listed company" structure which consists of two parent companies, one a UK company and the other an Australian company, neither of them a subsidiary of the other but essentially bound together by a profit-sharing agreement).

And of course, the market performance of the company's shares is something yet again!

So all in all, a pretty complex question, I'm afraid, and all I can really do is give you the above hints about how to go about trying to answer it, should you still want to try!

3. Why did the dividend take a nose dive 83.3p -> 21.7p, between 2015 and 2016?

Others have answered this adequately in my view.

Gengulphus

[TheMotorcycleBoy]

I've no idea about the second link, by the way - not a site I've used, and trying it gives me a "Demo Mode" screen. I can apparently get a free account, but I'm not in the habit of providing my details to any website that asks for them and don't plan to acquire such a habit. I've got to have a reasonably good personal reason to want to use the site, and answering a discussion board question isn't enough!

Fair enough. But TBH it's just a site, that offers a paid-for service, but as a teaser offers some figures for free. In limited experience the figures (for divs) are accurate, and seeing as not hold a subscription to any other online research platform, we tend to take whatever we can.

You don't have to enter any details, sign-up, etc. FWIW, I'm just as guarded as the next person re. putting my details out there.

This is the *only* reason I embedded that link:

Annual divs in our money, for BHPB
2006 	19.7p 	
2007 	23.8p 	up 20.8%
2008 	36.57p 	up 53.7%
2009 	53.88p 	up 47.3%
2010 	57.06p 	up 5.9%
2011 	63.18p 	up 10.7%
2012 	70.28p 	up 11.2%
2013 	75.69p 	up 7.7%
2014 	73.28p 	down (3.2%)
2015 	82.2742p 	up 12.3%
2016 	21.6755p 	down (73.7%)
2017 	64.0437p  up 195.5%

so I can't see anything particularly cyclical in the divs, mainly a tendency to increase, excepting a couple of market dramas.

Geng - do you hold BHP shares in a HYP?

I'm pretty sure plenty of others do on this site.

[TheMotorcycleBoy]

Yes, another link!

https://topbrokersites.com/a-decade-in- ... nd-policy/

I found the final para. inspiring...

BHP share price today
In a long, multi-decade perspective the value of the mining company seems very undervalued...

[dspp]

so I can't see anything particularly cyclical in the divs

The dividends may or may not be cyclical, and if not it is worth understanding why. What do you think the length of the cycle is ? For which commodity ? What do they get out of their holes in the ground ? How do they manage to smooth things ? What went wrong that one year ? Was it just that one year ?

Here are some long term charts, and they look pretty cyclical to me:

https://www.macrotrends.net/1369/crude- ... tory-chart

https://www.macrotrends.net/1476/copper ... chart-data

https://www.macrotrends.net/1333/histor ... year-chart

It is worth googling the term "commodity super cycle"

regards, dspp

[TheMotorcycleBoy]

People might question (and have done so!) whether you ought to want to analyse annual reports, but if you do want to, that's the one to analyse!

People can question all they wish. However, a company's annual reports, unless one is actually the CFO, seem to be, to me, and a great many investment writers, the most accurate way to gauge how well a firm can pay you a dividend.

Here are some long term charts, and they look pretty cyclical to me:

https://www.macrotrends.net/1369/crude- ... tory-chart
https://www.macrotrends.net/1476/copper ... chart-data
https://www.macrotrends.net/1333/histor ... year-chart

It is worth googling the term "commodity super cycle"

Indeed they are. I may well research, cyclical firms in more depth, my friend; but yeah, they are probably something we may well steer clear from.

FWIW, I already have reached a probable conclusion, yes a BHPB made a 6.4B USD loss in 2016. (Yes, I *know* it's already been mumbled but I happier to read it for myself in an audited document.). And that's cause for concern for a worrier.

I do think the term of the term "cyclical" a little, I dunno, frivolous, arbitrary. A lot of things are cyclical....Mel and I were looking at NXT shares, and of cause, fashions are cyclical. So too are retail sales, e.g. Xmas, Summer holiday purchases etc. So it the productivity of land/agriculture etc.

Indeed isn't a typical stock market cyclical to an extent? Bull/bear etc.? Or is it cyclical superimposed on an inflationary trend?

I am modifying my phase 2 trackers to move heavily into undervalued commodity oils. My risk will go up as a result. I recognise that there is a risk that oils may stay down for a long time, or even not recover ever (peak oil, renewables), but I think I have enough sector knowledge to discount that for this commodity cycle. I am going to use RDSB (and later BP) as my proxy for the sector. I intend to switch back out of oils at some point when I think the cycle is playing outm perhaps 3-6 years.

That sounds like trying to time the market, but I can see acknowledgement of this, by your usage of the word "risk".

That's certainly not what are trying to do. We are just looking for boxes which pay either small but growing divs, or reliable fat divs.

I am prepared to put (say) 25% of my exposure in this.

But we were only going to put about 4% of our current investments (i.e. about 1k) on BHP billiton. In this light, why would it be such a dreadful mistake....given that none of us really know exactly what the future holds? Just predictions of risk and reward.

Matt

PS sorry about garbled replies - have spent long enough at the PC for one day, already!

[dspp]

I may well research, cyclical firms in more depth, my friend; but yeah, they are probably something we may well steer clear from.

I'm not saying you should steer away from them at all, just seek to understand what anything is if you are proposing to put some of your hard-earned £££ in it.

I do think the term of the term "cyclical" a little, I dunno, frivolous, arbitrary. A lot of things are cyclical....Mel and I were looking at NXT shares, and of cause, fashions are cyclical. So too are retail sales, e.g. Xmas, Summer holiday purchases etc. So it the productivity of land/agriculture etc.

Yes and no. There are many cycles, and we would all be very clever if we could see them in advance. But recognising that commodity cycles exist as part of the macroeconomic cycle for countries / world is important. It is different than dress fashions

Indeed isn't a typical stock market cyclical to an extent? Bull/bear etc.? Or is it cyclical superimposed on an inflationary trend?
Actually they can be related.

We are just looking for boxes which pay either small but growing divs, or reliable fat divs.
There is no such perfect thing. All boxes have a chance of partial or total failure.

But we were only going to put about 4% of our current investments (i.e. about 1k) on BHP billiton. In this light, why would it be such a dreadful mistake....given that none of us really know exactly what the future holds? Just predictions of risk and reward.
I kinda got that, and I'm certainly not trying to dissuade you against BHP, just trying to help you recognise what sort of share it might be, and which tools to use to think about it. Within a few months of my putting 3% in BHP it halved in value. You at least can have the benefit of my experience in going through your decision-making process. You may still make the same decision as me.

PS sorry about garbled replies - have spent long enough at the PC for one day, already!
No worries. It is a lovely day.

regards, dspp

[TheMotorcycleBoy]

Within a few months of my putting 3% in BHP it halved in value.

You'll probably think that I'm insane in saying this, but surely when one acquires a share which pays a div. then if the share price goes down, then all things being equal, as long as the firm does go bust, then if you reinvest the div, then your the number of re-purchased extra shares follows a relationship of inverse proportionality to the current share price. So why is a fluctuation in the share price such a massive problem?

You at least can have the benefit of my experience in going through your decision-making process.

Yup. I appreciate it.

You may still make the same decision as me.

Who knows? But you are certainly doing a bloody job of making me into even more of a doubting Thomas than usual!

[Gengulphus]

I've no idea about the second link, by the way - not a site I've used, and trying it gives me a "Demo Mode" screen. I can apparently get a free account, but I'm not in the habit of providing my details to any website that asks for them and don't plan to acquire such a habit. I've got to have a reasonably good personal reason to want to use the site, and answering a discussion board question isn't enough!

Fair enough. But TBH it's just a site, that offers a paid-for service, but as a teaser offers some figures for free. In limited experience the figures (for divs) are accurate, and seeing as not hold a subscription to any other online research platform, we tend to take whatever we can.

You don't have to enter any details, sign-up, etc. FWIW, I'm just as guarded as the next person re. putting my details out there.

Also fair enough! It wasn't meant at a criticism, by the way, just an explanation that I wasn't commenting on it and why not...

This is the *only* reason I embedded that link:

Annual divs in our money, for BHPB
2006 	19.7p 	
2007 	23.8p 	up 20.8%
2008 	36.57p 	up 53.7%
2009 	53.88p 	up 47.3%
2010 	57.06p 	up 5.9%
2011 	63.18p 	up 10.7%
2012 	70.28p 	up 11.2%
2013 	75.69p 	up 7.7%
2014 	73.28p 	down (3.2%)
2015 	82.2742p 	up 12.3%
2016 	21.6755p 	down (73.7%)
2017 	64.0437p  up 195.5%

OK, given that I can now comment that it isn't entirely accurate. It's reasonably close provided it's taken as a record of the dividends the company paid for its financial year or the dividends it paid in a calendar year, but it's not exact, probably because of using different exchange rates to the company. (I can't tell which, as they're the same thing for BLT: its financial year ends on June 30th, so the dividends paid for a financial year will be an interim for the half-year ending the previous December 31st (generally paid in March) and a final (generally paid in September)).

Why I know that it's not completely accurate is that BHP Billiton provide a from-the-horse's-mouth version of the dividends paid in sterling:

https://www.bhp.com/-/media/documents/i ... .pdf?la=en

How I found that is simple: I searched online for "BHP Billiton investor relations". That gave me https://www.bhp.com/investor-centre, and on looking at that page, it wasn't hard to see a section titled "Dividends" and subtitled "Notice of dividends dates, summary of previous dividends." Clicking on and looking at the resulting page gave me a choice of summaries of previous dividends for the "Limited" company (the Australian part of the "dual listed company" structure) and the "Plc" company (the UK part). I (and presumably you) have shares in the UK "Plc" company, so that's the one I chose.

A similar technique works for many big companies. If you don't immediately find a "Dividends" section, look for a "Shareholder Information" section or similar. If you don't find that either, try searching for "<company name> dividends" instead of "<company name> investor relations" . (Or you could try the searches in the other order - I normally try the investor relations search first, but that's because I'm normally after other stuff as well, such as annual reports.)

I do say just "works for many big companies" rather than something more universal, though, because some companies are unhelpful about that, even a few big ones!

so I can't see anything particularly cyclical in the divs, mainly a tendency to increase, excepting a couple of market dramas.

Only one within the range of that table, namely 2016. The 2014 one was just due to exchange rate effects - the dividend was up in US dollars, the declaration currency, but the dollar:sterling exchange rate moved against UK investors more than the increase helped them.

As far as "cyclicality" is concerned, I would drop the idea that "cycles" are involved in any sort of 'scientific' or 'engineering' sense of regularly repeating with a particular period. Instead, I would take it to mean "more than usually sensitive to economic conditions outside the company's control". In BLT's case in 2015-2016, market demand for various commodities dropped significantly (IIRC, attributed to China reducing its growth ambitions), causing commodity prices to drop very sharply and that had a major effect on BLT and other mining companies. It happening was beyond their control - the question was how quickly and effectively they would react to it.

Edit: I'll add that a good rule of thumb is that apparent dividend cuts by less than about 25% are usually revealed on investigation not to be deliberate cuts by the company due to difficulties in maintaining its dividend, but due to a variety of other effects such as exchange rates or rights issue adjustments. Not a certainty, but it can give a good hint what sort of thing to look for first!

Geng - do you hold BHP shares in a HYP?

Yes - have done so since 2007. Came close to selling them off in 2015-2016 - it was hard to remain stoically 'non-tinkering' (*) in the face of rarely (if ever!) seeing anyone on TMF with a good word to say about them for many months on end - but I'm glad I didn't! A glance at a 5-year share price chart will reveal why if you don't already know - among doubtless many other places, there's a small one a little way down in https://uk.advfn.com/p.php?pid=financia ... LT&s_ok=OK. (A free data source that I find useful for an initial quick look at a company, though beware that its data is by no means immune to errors and unconventional interpretations - for instance, all its "debt" and "gearing" figures are based on total liabilities, not those that are actually debt.)

By the way, it's usual to use the stockmarket symbol for a company or its name, making certain not to use an abbreviation of the name that can be mistaken for a stockmarket symbol - which is why I've been calling them "BLT shares". "BHP shares" risks misleading people who aren't aware of the actual situation into using the wrong symbol. It shouldn't do so for those who know what they're doing, even if they don't know the reason for the odd choice of symbol, but that doesn't include everyone! (And if you want to know the reason, BHP Billiton was formed as a dual listed company structure of Australian and UK companies, with the "BHP" coming from "Broken Hill Proprietary" in the original Australian company name and the UK company having been Billiton plc. I presume that each of them simply kept their previous symbol on their main stockmarket in the process - so BHP Billiton Limited has symbol "BHP" on the Australian Stock Exchange, and BHP Billiton plc has symbol "BLT" on the London Stock Exchange.)

Gengulphus

[TheMotorcycleBoy]

How I found that is simple: I searched online for "BHP Billiton investor relations". That gave me https://www.bhp.com/investor-centre, and on looking at that page, it wasn't hard to see a section titled "Dividends" and subtitled "Notice of dividends dates, summary of previous dividends." Clicking on and looking at the resulting page gave me a choice of summaries of previous dividends for the "Limited" company (the Australian part of the "dual listed company" structure) and the "Plc" company (the UK part). I (and presumably you) have shares in the UK "Plc" company, so that's the one I chose.

A similar technique works for many big companies. If you don't immediately find a "Dividends" section, look for a "Shareholder Information" section or similar. If you don't find that either, try searching for "<company name> dividends" instead of "<company name> investor relations" . (Or you could try the searches in the other order - I normally try the investor relations search first, but that's because I'm normally after other stuff as well, such as annual reports.)

Thanks for this Geng,

Yes, I'm familiar with the "<company name> investor relations" search, but I think we'd overlooked that we can also *often* pick up div history from the investor centre sites that you might land in. And that's why we often just search out the generic sites like "dividenddata" or "dividendmax". In the past I've compared the stated the figures found here against those in the ARs, and found they are accurate enough for our purposes.

As far as "cyclicality" is concerned, I would drop the idea that "cycles" are involved in any sort of 'scientific' or 'engineering' sense of regularly repeating with a particular period. Instead, I would take it to mean "more than usually sensitive to economic conditions outside the company's control". In BLT's case in 2015-2016, market demand for various commodities dropped significantly (IIRC, attributed to China reducing its growth ambitions), causing commodity prices to drop very sharply and that had a major effect on BLT and other mining companies. It happening was beyond their control - the question was how quickly and effectively they would react to it.

Thanks for this - that makes a lot of sense. I guess most firms have some level of sensitivity/uncertainty in the way their markets, hence prices change, but in the case of this one those sensitivities are more pronounced. Presumably all type of global bulk material firms (e.g. ones that supply oil, metals, cotton, soybeans etc.) suffer in a similar category of risk - albeit each one having it's own particular stress factor(s).

Kinda why I was initially a little sceptical with the term cyclical being used in this instance.

By the way, it's usual to use the stockmarket symbol for a company or its name, making certain not to use an abbreviation of the name that can be mistaken for a stockmarket symbol - which is why I've been calling them "BLT shares". "BHP shares" risks misleading people who aren't aware of the actual situation into using the wrong symbol. It shouldn't do so for those who know what they're doing, even if they don't know the reason for the odd choice of symbol, but that doesn't include everyone!

Yeah, ok. I'd actually been using just the ticker for firms in other threads, but my lack of clarity was mentioned. So verbosity it is for now. I (and I believe others) try to just some abbreviations mainly because I often end up writing quite a bit, and wanting to claw back editing time!

(And if you want to know the reason, BHP Billiton was formed as a dual listed company structure of Australian and UK companies, with the "BHP" coming from "Broken Hill Proprietary" in the original Australian company name and the UK company having been Billiton plc. I presume that each of them simply kept their previous symbol on their main stockmarket in the process - so BHP Billiton Limited has symbol "BHP" on the Australian Stock Exchange, and BHP Billiton plc has symbol "BLT" on the London Stock Exchange.)

Thanks, yes I'd managed to read up on the history.

Needless to say, you lot have scared me off this stock!

But looking at it i.e. it's history, through all the outside world dramas, in my naive opinion, it looks like it must be very well managed. I'm almost tempted to forget all the uncertainties, "cycles", etc. and just take the view, "Jeez, whoever runs this thing, is much better than me at making money through thick and thin - I'll trust him with mine!!" (if you'll pardon the pun)

Matt

[TheMotorcycleBoy]

The 'why' boils down to a) the duration one intends to hold them; and b) whether they are expected to give capital growth, dividend stream, or some combination (i.e. TR); and c) whether it is being viewed in isolation or as part of a wider portfolio. This question is about yourself.

Hello again dspp,

As usual please forgive our greenness, but what do you mean by "TR"?

My guess is "total return". Correct?

IOW, for me and Mel whose only interest is div paying stocks, is based on

1) buying a stock and configuring things so that all divs reinvest
2) look at the stocks value every year at a particular fixed date, (which will obv. include the additional div-proceeds purchased shares) and then comparing the value of that holding at each interval.

as usual, many thanks
Matt

[dspp]

Matt,

Commodity cycles are real, and are to do with human behaviour and lead & lag times in large capital projects that have very long lifetimes. Most, but not all, commodity cycles are linked - or at least linked in 'sets'. So mining is a longer cycle than say food products. That makes sense if you realise that from final investment decision (FID) on a copper/nickel/iron/etc mine ($bn) to first product might be 5-10 years or more, ditto for oil/gas fields, coal. In contrast a agricultural commodity is having planting decisions taken every season ($k) or land development projects ($m) with say a year from FID to first cotton/grain/meat/etc.

Note those lead times, and note the relative scale of those numbers. Once that copper mine is built it will then be run at very low copper prices, far lower than the nominal investment price, as all it has to do is make a gross margin return in any given year. Indeed companies will occasionally run a mine at a loss on tick-over, simply to postpone mothballing costs and in the hope of a market uptick. (we see this in offshore oil & gas fields). That in turn leads to those markets being flooded with product during down-turns. Combine that with the price-demand curves of these products and you can see that very large earnings fluctuations can occur. And they do. Note it is a global game.

I fully get the "trust the professionals" approach to picking these companies. That is why I hold both BHP (BLT) and Rio Tinto, and I held S32 when demerged, as I take the view that on aggregate they will deliver and are internally diversified enough and with large enough reserves to ride through most of the inevitable global & project shocks & cycles. Ditto for Shell and BP. So if one follows that thought train to its logical conclusion, ones investment decision then becomes not "which individual company to buy", but instead "when to buy a 'basket' of companies, and which should be in that basket".

Mel,

When BHP's share price halved (and divis stuttered) I didn't notice that much and didn't fuss when I did. I could fairly quickly see I had made a timing error, but couldn't get in a time machine to fix it, and so decided to ride through and that worked OK. However it did set me thinking about loading up, which I duly did in RDSB, which again has worked OK so far.

regards, dspp

PS. Yes TR = total return. In my opinion if you are buying on dividend only you will make mistakes. Furthermore your stated aspirations (esp wrt growth companies) is at odds with buying on divi yield alone. It is an oddity of the UK financial sector that high growth companies pay dividends. More ordinarily the management team of a high growth company should NOT pay dividends. For a high growth company to pay dividends is the mge team saying to the shareholders "there is some spare cash here, and we have run out of ideas and don't know what to do with it, so we'll give it back to you". Instead they should be saying "spare cash here is being invested by us tomorrow in XYZ". That UK-specific (or European-specific) oddity is cultural, and that culture is why there are very few large scale high growth companies in UK/Europe. Contrast with USA. You are in danger imho of making the same mistake as all the purist HYP types .... (cue onslaught from elsewhere). Invest on TR. Identify how much of that TR is divi yield for each of your companies.

[Gengulphus]

PS. Yes TR = total return. In my opinion if you are buying on dividend only you will make mistakes. Furthermore your stated aspirations (esp wrt growth companies) is at odds with buying on divi yield alone. It is an oddity of the UK financial sector that high growth companies pay dividends. More ordinarily the management team of a high growth company should NOT pay dividends. For a high growth company to pay dividends is the mge team saying to the shareholders "there is some spare cash here, and we have run out of ideas and don't know what to do with it, so we'll give it back to you". Instead they should be saying "spare cash here is being invested by us tomorrow in XYZ". That UK-specific (or European-specific) oddity is cultural, and that culture is why there are very few large scale high growth companies in UK/Europe. Contrast with USA. You are in danger imho of making the same mistake as all the purist HYP types .... (cue onslaught from elsewhere). Invest on TR. Identify how much of that TR is divi yield for each of your companies.

And there are problems with the general "spare cash here is being invested by us tomorrow in XYZ" approach as well. If it really is being invested in the near future ("tomorrow") in a truly good opportunity (i.e. "XYZ" is a real business that can be expected to give a good investment return, and the company can absorb it effectively), it's really excellent - far better than passing by the opportunity and returning the cash to shareholders. But the culture that management ought to always have that approach generates all sorts of problems, essentially because management feel that they have to live up to it. Some examples are:

* Leaving the cash in low-return bank deposits for many years on end on the grounds that the company wants it for (unspecified) future investments (i.e. "tomorrow" simply isn't tomorrow in any meaningful sense of the word!).

* Acquiring companies that simply aren't very profitable, on the assumption that management can turn them around (which is fine if they can, but too often it transpires that they can't...) or even just that investors will see them as "doing something".

* Acquiring companies that are decently profitable, but overpaying for them, so that the return on the company's investment is mediocre.

* Acquiring too many or too large companies, with the result that a lot of management time gets wasted on 'firefighting' incompatibility issues with the new company/ies, a lot of existing staff time gets diverted into training the staff acquired in how things are done, etc.

* Trying to develop new ideas simply because they're a hobby horse of a director or two who thinks they're the "way of the future" rather than a realistic assessment of whether they actually are.

* Indiscriminately trying to develop every new idea that comes along. I saw this one at first hand with my first employer here in Cambridge - when times were good, any halfway-decent idea would get an enthusiastic response from management and people would be given the job of trying to develop it. When the business went sour and suddenly there was anything but "spare cash" sloshing around and more business-oriented management took over, one of the things they first did was simply find out what active projects there were in existence. It took them a while, but they got there - and it turned out that the company had considerably more at-least-theoretically-active projects than employees! Needless to say, most of them were only making glacial progress...

* Etc, etc, etc - there are many ways management can end up wasting "spare cash"!

In short, yes, if done properly "spare cash here is being invested by us tomorrow in XYZ" is better than "there is some spare cash here, and we have run out of ideas and don't know what to do with it, so we'll give it back to you". But there are not-so-well-implemented versions of the former, and the latter (with the understanding that "ideas" means "good ideas that can be done in the near future and have a realistic prospect of being profitable") is better than management having run out of such ideas but failing to recognise that they have done so!

That's one of the issues of investing in 'growth companies'. Basically, they will go 'ex-growth' sooner or later and the investor either needs management who have the skill to spot that happening in good time and start returning cash to shareholders, or to have that skill themselves and use sales to return the cash to themselves.

Gengulphus

[TheMotorcycleBoy]

Commodity cycles are real, and are to do with human behaviour and lead & lag times in large capital projects that have very long lifetimes. Most, but not all, commodity cycles are linked - or at least linked in 'sets'. So mining is a longer cycle than say food products. That makes sense if you realise that from final investment decision (FID) on a copper/nickel/iron/etc mine ($bn) to first product might be 5-10 years or more, ditto for oil/gas fields, coal. In contrast a agricultural commodity is having planting decisions taken every season ($k) or land development projects ($m) with say a year from FID to first cotton/grain/meat/etc.

Note those lead times, and note the relative scale of those numbers. Once that copper mine is built it will then be run at very low copper prices, far lower than the nominal investment price, as all it has to do is make a gross margin return in any given year. Indeed companies will occasionally run a mine at a loss on tick-over, simply to postpone mothballing costs and in the hope of a market uptick. (we see this in offshore oil & gas fields). That in turn leads to those markets being flooded with product during down-turns. Combine that with the price-demand curves of these products and you can see that very large earnings fluctuations can occur. And they do. Note it is a global game.

Thanks DSPP, this is very useful/interesting stuff.

Whilst I do see some benefits in thinking about investing in materials/resourcing; firstly I'm thinking not of oil or iron ore necessarily but more the materials comprising batteries (lithium, nickel) and solar cells etc, and secondly I think it would be better, least for us to use "some kind of global investment fund type product" as our vehicle.

Yes TR = total return.

Thanks!

In my opinion if you are buying on dividend only you will make mistakes.

Probably, if DY was our only criteria.

However, this is not the case: But we are trying (well from now on at least) to be reasonable fussy regards the exact firms we choose as the mature div firms, e.g. firms where the dividend is growing, where the firm has improving (or high) profitability, and where the firm has acceptable levels of debt.

Furthermore your stated aspirations (esp wrt growth companies) is at odds with buying on divi yield alone.

Surely that's irrevelant? We also have about 30% of our investments in corps bonds, 10% in NS&I bonds, 15% in a world index funds (which reinvests the divs).

re. Equity we always want a div: either a thin and maybe improving one from a growing firm, or a fat (but safe) one from a mature firm.

It is an oddity of the UK financial sector that high growth companies pay dividends. More ordinarily the management team of a high growth company should NOT pay dividends.

I see it differently, and I appreciate that I lack yours and others experience. I see it as a guy who has read plenty, and seen plenty regards market crashes and fluctuations.

I elaborated on some of my views here in a different thread
viewtopic.php?p=152829#p152829

I'm not prepared to spend my cash on some pieces of paper which (e.g. the ftse100 about now) which may be worth 7500 now, then 12000, and then 4000 after a crash. I want compensation that my stake in the company, seeing as they aren't paying me a wage, is being rewarded.

That UK-specific (or European-specific) oddity is cultural, and that culture is why there are very few large scale high growth companies in UK/Europe. Contrast with USA.

I think the deal with people investing in zero div, high-faluting growth firms is fine for some but for me it's abhorrent.

1. The massive escalation of the SP we often see is unrealistic: often times just a complete fairy tale (e.g. Sage's around the dotcom bubble).
2. Is all the money really going into the firm, does it actually need all that money for that year? Perhaps it's lining the boards pockets....perhaps it's paying for more expensive hotels, getting a company helicopter.
3. Is big economic growth really going to go on forever and is it even a good idea for that to occur?

Invest on TR. Identify how much of that TR is divi yield for each of your companies.

This point is interesting: but a div or coupon of some form is essential for our investment philosophy.

Matt

[TheMotorcycleBoy]

...essentially because management feel that they have to live up to it. Some examples are:

* Leaving the cash in low-return bank deposits for many years on end on the grounds that the company wants it for (unspecified) future investments (i.e. "tomorrow" simply isn't tomorrow in any meaningful sense of the word!).

* Acquiring companies that simply aren't very profitable, on the assumption that management can turn them around (which is fine if they can, but too often it transpires that they can't...) or even just that investors will see them as "doing something".

* Acquiring companies that are decently profitable, but overpaying for them, so that the return on the company's investment is mediocre.

* Acquiring too many or too large companies, with the result that a lot of management time gets wasted on 'firefighting' incompatibility issues with the new company/ies, a lot of existing staff time gets diverted into training the staff acquired in how things are done, etc.

* Trying to develop new ideas simply because they're a hobby horse of a director or two who thinks they're the "way of the future" rather than a realistic assessment of whether they actually are.

* Indiscriminately trying to develop every new idea that comes along....

Totally agree. Esp. re acquisitions.

My firm is currently trying to acquire another firm of approximately the same headcount/market cap etc. Complete lunacy.

That's one of the issues of investing in 'growth companies'. Basically, they will go 'ex-growth' sooner or later and the investor either needs management who have the skill to spot that happening in good time and start returning cash to shareholders, or to have that skill themselves and use sales to return the cash to themselves.

Agreed. The party must end some time!

[77ss]

....
But looking at it i.e. it's history, through all the outside world dramas, in my naive opinion, it looks like it must be very well managed. I'm almost tempted to forget all the uncertainties, "cycles", etc. and just take the view, "Jeez, whoever runs this thing, is much better than me at making money through thick and thin - I'll trust him with mine!!" (if you'll pardon the pun)

Matt

Very well managed? I disagree.

I have had a modest (phew!) holding since April 2010. Like dspp, I accept that I made a poor decision - both in choice of company and timing. I am hanging in there for the yield, but if the share price ever rises a bit, I shall get shot of it in an instant. I hope that the abandonment of the US shale oil business (coyly described as "Onshore US exit for value") may be a shot in the arm.

Over the years I have come to the conclusion that this is just a seriously accident prone company - and large companies can be like ocean liners.....

Over and above the underlying 'cycles' it just keeps throwing money away.

Not the only miner to do this of course; to some extent it comes with the territory, but I've done much better with RIO.