When BHP Billiton boss Andrew Mackenzie was asked in August about the prospect of cutting his firm’s dividend, he replied ‘over my dead body sounds a little strong, but it is almost right’. How swiftly things can change. The company just announced it’s scaling back its interim dividend by 74% (to 16c or 11.2p) as part of a ‘broader strategy to help BHP Billiton manage volatility’.
Shares fell 5% to 755.2p on the news - hardly a surprise. But do reductions in the dividend have to be a bad thing? Rolls-Royce cut its dividend for the first time in years in mid-February, and its stock jumped 15%.
In both cases, it was clearly good for the company’s financial health. BHP paid out $3.2bn in dividends over the last six months, despite posting a $5.7bn loss, divesting $7bn in assets and doing nothing to dent its $25.9bn net debt pile. Allowing the balance sheet to disintegrate like that just to maintain the dividend is effectively sacrificing the future of the business to satisfy investors’ immediate demands – not exactly something you’re likely to find in ‘running a multinational 101’.