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No dividend from Anglo, but bigger share price gains than higher yielding BHP Billiton

Published: 12:34 21 Feb 2017 GMT

Mining-truck
Miners are getting their capital back to work after a period of weakness

The absence of Anglo American’s (LON:AAL) dividend was largely glossed over this morning by markets enthused instead by a parsimonious reduction of debt, a return to profit, an improvement in margin and an increase in overall revenues in the year to December 2016.

In that context, the withholding of the dividend was regarded more as the prudent marshalling of capital than as any sign of weakness. Two years ago such withholding of a dividend - or even a mere dividend cut - would have been regarded as a catastrophic sell signal for a major or mid-tier miner.

That dynamic protected yields to some extent, as share prices fell in line with dividends, but value investors were left high and dry.

And Anglo, which has the added pressure of political risk in South Africa to contend with, went even further and opted for a complete suspension of dividend.

Now though, chief executive Mark Cutifani has signalled that the dividend should come back at the end of this year.

He’s got that room for manoeuvre now as Anglo has now returned to profits after a hefty loss in 2015. What’s more, the real bugbear of the markets, debt, now appears to be well under control.

Anglo had set a net debt target of US$10bn for the end of the period, and comfortably beat that figure, carrying just US$8.5bn into 2017.

In response Anglo’s shares rose by a healthy enough 1% in early trade following the results.

Cutifani spoke of targeting “an incremental US$1bn of net cost and volume improvements” this year, and argued that there was no need to sell any more assets, other than for purposes of streamlining.

Meanwhile, BHP Billiton (LON:BLT) also sounded a positive note in the mining markets, and for similar reasons in terms of debt reduction and productivity gains, although BHP Billiton’s dividend remains much more robust at US40 cents a share, comfortably exceeding the stated target of 50% of profits.

Even so, if further proof were needed that dividend policy is no longer the trigger signal for trading, BHP Billiton’s share price was flat on half year numbers which also showed a return to profits from a loss in the corresponding period a year ago, a swing indeed of US$10bn, as losses of US$7bn booked in the six months to December 2015 were set against profits of over US$3bn for the more recent period.

So one major pays a healthy dividend, while one pays none at all, and both share prices respond similarly to results robust in other similar ways. The power of the dividend is no longer what it was, it seems.

Instead, capital gain is back on the table. Anglo’s shares were the best performing constituent of the FTSE100 last year. Shares in BHP Billiton more than doubled in the period January to December 2016, but Anglo’s were up more than fourfold.

With those sorts of gains showing up in portfolios, the dividend can once again start to play second fiddle in valuation models. 

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