MARKETS SPECTATOR: BHP's dividend block

BHP Billiton's chief say the company will keep its payout ratio at 50 per cent as the focus turns to spending cuts.

Andrew Mackenzie, BHP Billiton’s new chief executive, will not be increasing the company’s dividend payout ratio.  

In a speech last night at a conference in Spain, Mackenzie said BHP’s 50 per cent payout ratio was “reasonable” and he expected it to continue.

The world’s biggest mining company will be run with a view to “increase free cash flow”, Mackenzie said, adding “more growth comes through improved productivity”. He said he wanted to “invest less to grow more” and to expect substantial cost savings in Queensland’s Bowen Basin after the company cleans up following floods and also solves it union problems there. And BHP will cut its contracting budget substantially globally.

Mackenzie said BHP’s “overall spending” would peak at $22 billion in the 2013 financial year. It will fall to $18 billion in 2014 and to $15 billion for the following “two to three years”, he said.

On China, Mackenzie thinks investor sentiment has been “too pessimistic” regarding commodity demand. The long-term commodity demand outlook in China is “more attractive than some may believe”,  he said.

He is, however, wary of opposition to mining in non-OECD countries. Communities are increasingly able to organise against mining, Mackenzie said, in non-OECD nations and there is “a lot more confidence and security of tenure in the OECD".

BHP shares today rose 12 cents, or 0.4 per cent, to $34.67. The stock is up 4 per cent over the last 12 months against a 22 per cent gain in the benchmark S&P/ASX 200 Index.

BHP's London shares rose 0.4 per cent to £19.20 but its US shares fell 0.2 per cent to US$68.27.

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