Is BHP Billiton plc A Better Income Stock Than SSE PLC And Intu Properties PLC?
Earlier in the year, BHP Billiton(LSE: BLT) was one of the highest yielding stocks in the FTSE 100. This was partly because its share price had collapsed in response to a deteriorating outlook for the mining sector and also because the company's management hadn't yet followed many of its peers in cutting shareholder payouts. As such, BHP Billiton's yield was perhaps artificially high.
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Looking ahead, the diversified miner is forecast to reduce dividends over the next couple of years and it now has a forward yield of around 2.2%. This may make it appear to be rather unappealing as an income stock, but with profits rising rapidly, BHP Billiton's dividend could increase at a rapid pace.
For example, in the next financial year BHP Billiton's pre-tax profit is set to increase from £1.2bn to £3.1bn. While this rate of growth may not continue at the same pace in future years, it shows that with BHP Billiton's dividends due to be fully covered by profit next year, there's scope for a higher payout in future.
Clearly, this depends hugely on the price of commodities. But with the outlook for oil being brighter due to the likelihood of reduced supply and other commodities also having the potential to benefit from an improving global economy, BHP Billiton may hold some value as an income stock over the medium-to-long term.
Yield appeal
However, that appeal falls short of the attraction of SSE(LSE: SSE) and Intu Properties(LSE: INTU). They currently yield 6.1% and 4.7% respectively, which clearly makes them more appealing income plays right now than BHP Billiton. However, in the case of SSE, it also offers a more stable and resilient income outlook.
That's because SSE's business model is relatively robust and the chances of its bottom line collapsing (as has been the case for BHP Billiton) are slim. This should give its investors' confidence in the outlook for dividends and with them forecast to at least match inflation over the medium term, SSE continues to be an excellent income buy. Furthermore, SSE trades on a price-to-earnings (P/E) ratio of just 13.2 and it therefore seems to offer good value for money.
Meanwhile, shopping centre operator Intu Properties also has upbeat dividend prospects. Its shareholder payouts have been remarkably consistent in recent years, even though the performance of the UK economy and retail sector have been rather challenging. This bodes well for the company's investors since the outlook for the sector is highly uncertain at the moment. And with Intu Properties trading on a price-to-book (P/B) ratio of 0.8, there's upside potential on offer.
So, while BHP Billiton remains a sound long-term buy from a total return perspective, SSE and Intu Properties seem to offer more dividend potential than the mining giant at the present time.
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Peter Stephens owns shares of BHP Billiton and SSE. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
