LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 (UKX) and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at BHP Billiton (LSE: BLT.L) (NYSE: BBL) to determine whether you should consider buying the shares at 1,950 pence.

I am assessing each company on several ratios:

  • Price/Earnings (P/E): Does the share look like a good value when compared against its competitors?
  • Price Earnings Growth (PEG): Does the share look like a good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:



3-year EPS growth

Projected P/E



3-year dividend growth

Dividend cover

BHP Billiton 1,950p 36% 11.5 N/A 3.6% 29% 2.9

The consensus analyst estimate for next year's earnings per share is $2.69 (20 % fall) and dividend per share is $1.23 (3% growth).

Trading on a projected P/E of 11.5, BHP appears to be more expensive than its peers in the mining sector, who are currently trading on an average P/E of 5.7. Indeed, BHP's P/E ratio and negative growth rate gives a PEG ratio of less than zero. With a negative result, the PEG ratio cannot help with my analysis.

Supporting a 3.6% yield, the dividend is above average for the mining sector, which currently offers a 2.9% average yield. BHP also has a three-year compounded dividend growth rate of 29%. However, the growth rate is coming under pressure this year from lower commodity prices.

Nonetheless, the dividend is nearly three times covered. What's more, BHP has returned almost $54 billion to shareholders through dividends and buybacks over the last 10 years, and returned $15 billion during 2011 alone!

BHP appears expensive, with slowing growth
BHP looks to be expensive compared to its peers. However, as the world's biggest diversified miner, I believe the company does deserve a premium. Indeed, unlike most miners, BHP has not cut its dividend in 100 years!

BHP's management is focused on a strategy of improving margins and diversifying into a resources company, rather than operating as a pure miner. I believe this strategy is already starting to benefit shareholders. You see, during 2012, BHP's earnings fell by $1.5 billion due to lower base-metal prices; however, BHP's record petroleum output provided a commensurate $1.5 billion boost to profits.

Due to intensive capital spending, BHP saw its level of debt rise by 150% during 2012. With fears of rising debt, the management of the company has scaled back the pace of spending -- with some major projects being put on hold. Management is also selling non-core projects.

In my opinion, BHP looks to be good value. The diversification into a wider resources company has reduced the pressure of falling metals prices while margin improvements are maintaining shareholder returns.

Even though growth is slowing, I believe now looks to be a good time to buy BHP Billiton at 1,950 pence.

More FTSE opportunities
As well as BHP Billiton, I am also positive on the FTSE shares highlighted in "8 Dividend Plays Held By Britain's Super Investor." This exclusive report reveals the favorite income stocks owned by Neil Woodford -- the City legend whose portfolios have thrashed the FTSE All-Share by 200% during the 15 years to October 2012.

The report, which explains the full investing logic behind Woodford's dividend strategy and his preferred blue chips, is free to all private investors. Just click here for your copy. But do hurry, as the report is available for a limited time only.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.