Investing.com -- BHP (ASX:BHP) Group's (LON:BHPB) stock traded lower on Tuesday after the company announced a significant cut to its dividend, despite reporting a mixed first-half result for fiscal year 2025.
The miner's profit fell, driven by weaker iron ore prices, although the company remained focused on its strategic shift towards copper as a key growth area.
BHP said it would cut its dividend payout to the 50% minimum. The company typically pays out a higher proportion of its profits, but with this reduced payout, it signals a shift in its capital allocation strategy.
The announcement highlighted a 1H result that broadly met expectations, with earnings in line with consensus.
However, BHP's net debt increased, creeping toward the higher end of its target range due to costs related to the Samarco settlement and the Vicuña transaction.
Despite this, the company reassured investors that its leverage remains lower than that of its peers.
The miner’s net debt is expected to increase to $15 billion by the end of the fiscal year, driven by the dividend payout and other investments.
In light of these figures, BHP said that its comfort in temporarily exceeding its debt target to fund what it describes as value-accretive opportunities, particularly in copper and growth projects.
BHP said it would cut its dividend payout to the 50% minimum. The company typically pays out a higher proportion of its profits, but with this reduced payout, it signals a shift in its capital allocation strategy.
A key aspect of BHP's future plans involves the ramp-up of its copper projects, which, according to the company, are less capital-intensive than many M&A opportunities in the sector.
While its organic growth projects, such as the Jansen and Prominent Hill expansion, are progressing as planned, analysts note that these projects are long-dated, with meaningful production increases not expected until the 2030s.
Despite this, BHP is betting heavily on the long-term outlook for copper, a commodity the company believes is essential for the global energy transition.
On the operational front, BHP’s capital expenditure is set to rise to $10 billion in FY25, with projections for an increase to $11 billion in FY26 and beyond.
The company remains committed to its growth projects, including the Jansen potash mine, which remains on track and within budget.
However, it also flagged some delays, such as a 12-month delay for the Prominent Hill expansion project, with costs rising 36% to $912m due to slower-than-expected progress.
The company’s guidance for the full fiscal year has largely remained unchanged, except for a pullback in the mid-range target for Western Australian iron ore operations due to disruptions caused by Cyclone Zelia.
With commodity prices in flux and the dividend cut weighing on investor sentiment, analysts continue to maintain a neutral outlook on BHP, noting that the risk-reward scenario appears balanced.
"We do not expect any material change to earnings following 1H. We maintain a Neutral rating as we see the risk-reward as balanced as we expect weaker iron ore prices over 12mths+ to balance against stronger copper prices," said analysts at UBS Global Research in a note.