BHP Billiton dividend cut looming large, UBS warns

BHP Billiton will cut its dividend after being mauled by a combination of one-off costs, impairment charges and commodity prices at multi-year lows, UBS predicted on Thursday.

On the positive side of the ledger, Wednesday's half-year report showed coal, copper and petroleum production were running ahead of the company's guidance, the broker said, while iron-ore shipments were as expected in the latest quarter.

However, the energy and mining outfit announced additional restructuring charges and costs on top of further inventory write-downs and other extraordinary items for a grand total of up to $450m post-tax.

If one adds in the fourth quarter results then estimates of 2016 fiscal year earnings came down by 41% to $478m, implying a second half loss.

To boot, low commodity prices means cash flow is tight.

Therefore, even if operating cash flow "should" cover interest and capital outlays - both for growth and sustaining - "we believe a cut in the FY 16E dividend is warranted and we forecast a 50% cut to 62 centrs per share," analyst Myles Allsop said.

"BHP reiterated it is committed to protecting its strong balance sheet, which suggests reduced returns for shareholders may be required."

Allsop kept his 1,050p target price and 'buy' recommendation on the shares unchanged.