Is It Still Safe to Buy BHP Billiton Limited (ADR) (BHP)?

LONDON — I’m always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market has overheated. So right now I’m analyzing some of the most popular companies in the FTSE 100, hoping to establish whether they can continue to outperform in today’s uncertain economy.

Today I’m looking at the world’s largest miner by revenue, BHP Billiton Limited (ADR) (NYSE:BBL) , to determine whether the shares are still safe to buy at 1,810 pence.

BHP Billiton Limited (ADR) (NYSE:BHP)

So how’s business going?
Like the rest of its peers in the mining sector, BHP has fallen out of favor with the market recently as investors become concerned about the company’s falling revenue. In particular, BHP recently reported that during the first half of this year, the company’s revenue had fallen 14% and profit had declined 43% due to lower iron-ore prices.

However, BHP Billiton Limited (ADR) (NYSE:BHP)’s management is working hard to cut costs and boost profitability. Indeed, during the first half of this year, the miner slashed operating costs by nearly $2 billion and divested $4.3 billion of noncore assets in an attempt to streamline its asset portfolio and concentrate only on projects that generate a good return on investment.

In addition, with the majority of its operations in Australia, BHP Billiton Limited (ADR) (NYSE:BHP) should benefit from the weakening Australian dollar. So far this year the Australian dollar has eased 9%, which should be positive for the firm’s dollar-denominated earnings.

Unfortunately, while BHP’s management is working hard to cut costs, many City analysts expect the company’s earnings to fall again this year. City forecasts currently predict earnings of $2.50 per share for this year (a fall of 22%). However, City projections currently forecast that BHP Billiton Limited (ADR) (NYSE:BHP) will return to growth during 2014 and earn $2.80 per share for that year.

Shareholder returns
Mining companies are often criticized for not returning enough cash to shareholders. However, as the world’s largest mining company, BHP is leading the way in shareholder returns.

BHP’s dividend yield is currently 4% — larger than that of its peers in the mining sector, which currently offer an average dividend yield of 3.6%. In addition, BHP Billiton Limited (ADR) (NYSE:BHP)’s management has stated that it will safeguard the dividend and aim to either maintain or increase the company’s payout every year. For example, while earnings fell last year, BHP increased its dividend payout by 12%.

The verdict
As the world’s largest mining company by revenue, BHP is valued at a premium to its peers. It currently trades on a historic P/E of 8.7, while its peers trade at an average historical P/E of about 7.6. But overall, based on the company’s market-leading position and solid dividend yield, I believe that BHP Billiton Limited (ADR) (NYSE:BHP) still looks safe to buy at 1,810 pence.

The article Is It Still Safe to Buy BHP Billiton? originally appeared on

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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