Head to Head: BHP Billiton vs. Rio Tinto

LONDON -- In this new series, some of your favorite FTSE 100 shares go head to head in a three-round contest for superiority.

In Round 1, the firms fight on earnings; in Round 2, on dividends; Round 3 is a battle of the balance sheets. The winner will be the company that has racked up most points at the end of the contest.

Stepping into the ring today are mining giants BHP Billiton (LSE: BLT.L  ) and Rio Tinto (LSE: RIO.L  ) .

Fears about slowing growth in China and the eurozone have seen the shares of BHP Billiton and Rio Tinto underperform the FTSE 100 index over the last six months. The Footsie has moved 3% lower, but BHP Billiton is down 6% and Rio Tinto has dropped 20%.

Let's take our seats at ringside.

Round 1: Earnings

 

BHP Billiton

Rio Tinto

Recent Share Price (pence) 1,961 2,957
Last Year Price-to-Earnings (P/E) 9.7 5.8
Current-Year Forecast P/E 9.3 7.4
4-Year Average EPS Growth (%) 11 27
Current-Year Forecast EPS Growth (%) 4 -23
Forecast Operating Margin (%) 33 29

Source: Digital Look. Winners in bold.

Rio Tinto just edges the first round with its lower historic and forecast P/E ratios and superior historic EPS growth.

It's worth noting, though, that it's the historic measures that clinch it for Rio. Billiton takes points on forecast EPS growth and forecast operating margin, and narrows the gap with Rio -- though without taking the point -- on forecast P/E.

Round 2: Dividends

 

BHP Billiton

Rio Tinto

Last Year Dividend Yield (%) 3.6 3.1
Current-Year Forecast Dividend Yield (%) 4.0 3.3
4-Year Average Dividend Growth (%) 13 29
Current-Year Forecast Dividend Growth (%) 10 8
Forecast Dividend Cover 2.7 3.9

Source: Digital Look. Winners in bold.

Billiton earns a narrow win in the second round thanks to its superior historic and forecast dividend yield and forecast dividend growth.

Rio was particularly let down by the big drop in forecast dividend growth compared with its four-year average, reflecting expectations of negative earnings growth in the current year.

Round 3: Balance sheet

 

BHP Billiton

Rio Tinto

Price/Book (P/B) 1.0 1.1
Net Gearing (%) 36 23

Source: Digital Look. Winners in bold.

Billiton and Rio share the points in the final round, which means the contest ends all square. They've both won one round and drawn one, and have six points each overall.

Post-match assessment
The two contestants have acquitted themselves well. Both currently have low P/Es and high dividend yields relative to their own -- and the sector's -- historic averages. Their P/Bs indicate their assets are reasonably valued, while modest gearing points to strong balance sheets.

Mining is a cyclical industry, and earnings have dipped for the time being. But both companies should reward long-term investors -- although which of the pair will deliver the better return looks finely balanced.

However, the Motley Fool's top analysts have identified mining as one of three attractive sectors for 2012 and beyond; and each analyst has pinpointed an outstanding company in each sector.

To discover if BHP Billiton, Rio Tinto or another miner gets the crown -- as well as the top picks in the two other attractive industries -- grab yourself a copy of the free special report "Top Sectors Of 2012". The report is available for a limited time only, but you can have it in your inbox in seconds simply by clicking here.

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Further investment opportunities

G A Chester does not own any of the shares mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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