If you want to revel in BHP's share price, don't look beneath the surface

Outlook: If you have a pension or a tracker fund, or any investment with a link to the performance of the stock market, your fortunes will go hand in hand with those of BHP

BHP Billiton (Getty)

The sort of name recognition enjoyed by the likes of Tesco or Barclays is not something BHP Billiton is ever going to achieve. But it ought to be higher than it is and here’s why.

If you have a pension or a tracker fund, or any investment with a link to the performance of the stock market, your fortunes will go hand in hand with those of BHP, the world’s biggest producer of raw materials and one of the biggest constituents of the FTSE 100.

As such, you might feel you’ve got reason to be cheerful given the shares’ sprightly performance. That’s even though BHP reported results below expectations that were already muted due to the battering taken by the prices of commodities.

So why the good cheer? Because the company said it would maintain its progressive dividend policy at a time when rivals are cutting their payments. To underline the point, it held its final pay out, bringing the total for this year to $1.24 a share, compared with last year’s $1.21.

Clearly, then, this is a company that’s doing the bit for its shareholders ... isn’t it? Hooray for our pensions.

Would that it were so. The problem is that BHP reported underlying earnings per share of $1.21. In other words, it’s paying shareholders more than it’s actually earning.

You can do that over the short term by dipping into your reserves or by borrowing. But its hardly a sustainable strategy.

Not to worry, says the company, our debt actually fell during the year and the credit ratings agencies still think we’re okay. We’ll keep funding the payment over the next few years by cutting our capital expenditure.

Now you might think BHP’s decision to do this at a time when demand for its products is weak and there is a glut of supply is thoroughly sensible. But it’s not a terribly clever strategy if it wants to be successful over the long term. The company is in effect paying up today at the expense of investing in its future.

Why would it do that (other than to keep the City sweet)? Cynics might care to have a look at its remuneration report. Much is made of BHP’s use of something called total shareholder return in determining the size of the long-term incentive plan (LTIP) for chief executive Andrew Mackenzie. Through it, he can earn a “normal maximum award” worth 400 per cent of his $1.7m (£1.1m) basic salary and an “exceptional maximum award” of as much as 488 per cent.

Total shareholder return compares what you make from BHP’s share price plus its dividends with what you would have made through investing in a basket of competitors. This means Mr Mackenzie gets paid even if BHP’s share price takes a tumble – as long as it falls by less than the company’s rivals and the dividend holds up.

So he has an incentive to keep the dividend high, and he’ll know that the impact of cutting capital expenditure to do so will probably take longer to be felt than even the five-year vesting period for the shares handed to him via his LTIP. Still feel good about the rise in BHP’s share price?

Poundland deal may be good for savvy shoppers

U-turn has long been used as a pejorative term, and it shouldn’t be. When a body or a person changes their mind having considered the evidence, it’s all to the good.

Which brings us to the volte-face by the Competition and Markets Authority (CMA) on Poundland’s proposed merger with 99p Stores. Four months ago the watchdog launched an inquiry, having expressed concerns that the deal could crimp competition in the discount sector. It was always a questionable decision.

For starters, while 99p Stores is a rival to Poundland, it’s far from being alone. Nipping at both their heels are the likes of Bargain Buys, Wilko, Home Bargains and B&M. And to that list you can add Tesco and, to a certain extent, Asda, both of whose ranges cross over with Poundland’s.

Then there’s that self-imposed price point. While slightly silly from a business perspective, it does help to keep the company honest. It’s tough to keep an acceptable range when you’re having to sell below an arbitrary price, but deflation has made things easier and should continue to do so for some time thanks to the global rout in commodity prices.

No, this is a rare deal that might actually benefit the consumer, enhancing the company’s clout as a buyer, which in turn should enhance its ability to source products that it can sell for a pound or less.

The only real question for the CMA over its handling of Poundland and 99p Stores is why it took so long for the penny to drop.

Next mis-selling scandal to keep ombudsman busy

With complaints about payment protection insurance finally falling, you’d think the Financial Ombudsman Service would get a chance to breathe.

Apparently not. The latest data, covering the first half of 2015, shows an 8 per cent rise in complaints overall. This has driven by grievances about packaged bank accounts, which include add-ons such as insurance for a fee. Mis-selling of these accounts been rife and that the claims management companies have waded in as a result.

“Nobody wants another PPI,” said the chief ombudsman Caroline Wayman – probably more in hope than expectation, because the way things are going, she and her staff are about to get one.