As BHP Billitons(LSE: BLT) share price slumps to new lows, one of the only things thatskeeping investors interested in the company is its 11.1% dividend yield.
However, now thatGlencoreandAnglo Americanhave suspended their dividend payouts to investors, BHPs management is under pressure to do the same.
The perfect storm
BHP is facing the perfect storm of events. The prices of all four of the companys four key pillar commodities are under pressure. Copper hit a new six-year low this week, coal and iron ore are both trading at (or close to)all-time lows and the price of oil continues to plunge.
With no end to falling prices in sight, the writing is on the wall for BHP. Even if management doesnt want to cut the companys payout, its hand may be forced. BHP can only cut capital spending so far before operational efficiency starts to deteriorate and costs begin to rise.Also the company is facing a potential $3.5bn fine for its part in the Brazil dam disaster, whichkilled at least 13 people and devastated Brazils second-largest river system, the Rio Doce basin.
And the figures show that BHP is already struggling to scrape together the cash needed to fund its dividend payout to shareholders.
For example, the figures for BHPs last financial year (ending June 2015) show that the company generated $19.3bn in cash from operations during the year. Capital spending for the year totalled $12.9bn, leaving $6.4bn for the dividend, which cost $6.5bn. Commodity prices have deterioratedsince BHP reported these figures.
A better investment
On the other hand, as BHP tries to navigate its way through all of these issues, AstraZenecas(LSE: AZN) outlook is only improving.
Unlike BHP, Astra has control over the price of its products. BHP is forced to accept market rates for the commodities it mines, which makes it difficult to calculate a long-term valuation for the company and its assets. However, Astras managementis quite upbeat about the companys prospects and believes that the group has what it takes to return to growth by 2017. And this forecast has more weight behind it than any predictions about BHPs future performance.
Investing for growth
During the past 10years, Astra has spent around $5bn per annum on R&D, thats just under a fifth of revenues. The company now has more than 200 new products under development and City analysts believe that AstraZenecas treatment pipeline is robust enough to return the group to growth by 2017.
Analysts estimate that Astrasnew product sales could top $21bn 90% of existing sales by 2022 in a best-case scenario. Some of these products are already going through the final phases of testing, so to a certain extent Astras growth is de-risked and unlike BHP, investors dont have to cross their fingers and hope iron ore prices recover.
Then theres Astras dividend yield to consider. The companys shares currently support a dividend yield of 4.2% and the payout is covered one-and-a-half times by earnings per share, which leaves plenty of headroom if Astras growth is slower than expected.
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