After a dividend drop, BHP shareholders have some questions

BHP’s finance chief Vandita Pant explains the result and dividend cut to retail shareholders as the group focuses on copper.

BHP chief financial officer Vandita Pant.

This week BHP reported a 23 per cent drop in first-half profit with its interim dividend trimmed to an eight-year low as the payout fell to 50c a share, down from 72c a year earlier.

The Big Australian is one of the most widely held stocks in the market. I was granted an interview with Vandita Pant, BHP’s chief ­financial officer.

Question: Many retail investors would own BHP shares for a very long time and they would expect to receive lots of dividends. The payout is currently at the bottom of the range and it’s also ­declining now in multiple consecutive years. Maybe you could provide some background on why the decision on the dividend has been taken, and should retail investors now be a little bit more cautious with what to expect from BHP in terms of dividends?

Pant: First thing I would say is we know our shareholders are multi-generational holders of BHP stock, and we are a very long-term-oriented company as well.

We are very clear in our policy, which has been in place now for eight years, that whatever we make, 50 per cent of that goes to our shareholders, which is the minimum payout ratio. That is the stability our shareholders can bank on. In the years when we make a lot of money, when commodity prices are good, we pay our shareholders even more additional dividends, with buybacks, et cetera.

Vandita Pant with BHP chief executive Mike Henry.

Our track record speaks for itself. In the last eight years since our new capital allocation policy came into being, we have returned in cash $US83bn to our shareholders. And this is not even counting the Woodside Energy in specie dividend, which if you add it, would make it $US100bn returned.

Question: BHP has communicated a road map for further growth in copper. I noticed a few things are happening (reported cost blowouts) at Prominent Hill. Can you talk about what is happening at Prominent Hill, and BHP’s copper aspirations?

Pant: We have a great suite of projects and options in copper; in South Australia, in Chile, in Argentina, in the US, really fantastic projects.

I would say, overall, you would have seen that we are industry-leading in our delivery on projects. In terms of the performance at Prominent Hill, what you’re referring to is a small project which was part of OZ Minerals.

When we took it over, OZ management had talked about around $US400m of capital spend on that project. When we took it over, we took the view from the independent expert advice, which was around $US650m.

We have increased that by around $US200m. It’s a small increase in the scheme of things, as BHP’s capex spend is $US10bn for the year. The important thing is we are very forensically looking into this, so it doesn’t get repeated for other small projects. Overall, our track record on projects is industry-leading.

Question: Is it the case that BHP doesn’t need acquisitions to take maximum benefit from the coming copper mega trend?

Pant: In the current market, it is increasingly challenging to do a large global M&A deal and still create value. I would say our current focus is completely on organic options. But, of course, like any major company, you would expect us not to comment on any specific situation, so I’ll leave it there.

Question: For a company like BHP, what is happening in the economies of India and China remains all important. Can you share some of your insights about both countries?

Pant: I am quite bullish on India. India continues to be the fastest-growing major economy in the world. The government just announced a budget with urban infrastructure spending to go up by 50 per cent, which bodes very well for our met [metallurgical] coal business; 40 per cent of our met coal goes to India. In terms of China, the pro-growth stance of the Chinese government is clear.

We think that starts to push progressively for change in the composition of the economy and boost domestic demand. Sectors like infrastructure, machinery, EV exports, etc, have been doing well. Last year there was a lot of weakness in construction.

We think that drag starts to come out now, and we are seeing some early signs of recovery in data, like housing sales and housing sale prices, coming through. The reality for China is last year was the sixth year of 1 billion tons of steel production, yet again, and that is very good news for iron ore demand, and for BHP and its shareholders.