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Income Investing

BHPs sale of petroleum assets is great news for income investors

May 2022
Toby Bellingham
Portfolio Trader & Portfolio Manager
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BHP have sold their petroleum assets to Woodside. Investors will receive Woodside Energy shares in the form of a fully franked dividend.

Woodside shareholders unanimously voted in favour of the proposed acquisition of BHP Petroleum from BHP Group at the Woodside AGM which was held on 19May 2022. The deal is expected to complete on 1st June 2022

BHP investors will receive proceeds from the sale in the form of Woodside shares. This is especially beneficial for low and nil tax rate payers as the shares are in the form of a fully franked dividend.  BHP shareholders will receive 0.1807 Woodside shares for every BHP share held on ex-date which is 25th May  May. Based on the closing share price of 1we estimate that shareholders will be entitled to a dividend, paid in Woodside shares, worth approximately A$5.43 which is a 12% yield on the BHP price, plus a fully franked dividend of $2.33, for a gross yield of just under 17%

BHP has already paid an attractive dividend this year, yielding over 10%,and including franking credits, a gross yield of almost 15%. The diversified miner is currently one of the biggest dividend payers in Australia thanks to the increased profits from high prices paid for its commodity production, especially iron ore.

This is a meaningful transaction for both companies. Woodside will becomethe 8thlargest company in Australia by market capitalisation and atop 10 global oil and gas producer. BHP, however, is in the process of changingits commodity mix, selling many of the fossil fuel assets that produce carbonemissions.

After this sale, and the anticipated sale of its remaining thermal coal assets in NSW, BHP will concentrate on commodities important for the energy transition which include iron ore and metallurgical coal for steel making, copper and nickel for renewable energy and batteries as well as potash(fertiliser) to meet the agricultural demands of a rising global population.  

These asset sales will reduce BHPs Scope 1 and 2 carbon emissions by approximately13%. These are emissions that are owned or controlled by BHP. Scope 3emissions, those produced both upstream and downstream from BHPs activities (by its suppliers and customers) but are beyond its control, will be reduced by approximately 21%.

The Redpoint Australia Equity Income Fund currently has an overweight position in BHP and holders of the fund will receive the full benefit of this transaction.  The fund is focused on capturing above average levels of income specifically for low and nil tax ratepayers such as retirees.

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