At the current BHP Billiton Limited (ASX: BHP) share price, I would rather consider adding Telstra Corporation Ltd (ASX: TLS) shares to my portfolio for dividend income.
BHP Billiton Versus Telstra Corp
Until recently, BHP had a "progressive dividend policy" whereby it promised to maintain or increase its annual dividends to shareholders. Unfortunately, that policy went out the window when commodity prices plummeted.
You can see in the graph above that Telstra's dividend (the blue area) has stayed very consistent over time. By contrast, BHP's dividend bounced all over the place between 2015 and 2017.
Now, buying shares in a resources business is fine. If you are fancy your ability to pick the ups and downs of the resources sector, you may make some decent money. But if I were recommending a dividend share for my friends and family, I wouldn't recommend BHP.
Let's get one thing straight, though, even Telstra's dividend will change at some point in the future.
However, the difference it and BHP is that Telstra's products (e.g. mobiles, broadband, business services, etc.) are superior products to the competition. BHP's products (iron ore, coal, oil, etc.) are the same as those offered by other resources businesses. That means the prices of its products rely on the market moving in the right direction.
Movements in commodity prices can make BHP's revenue susceptible to big swings over time. And iIn my opinion, that makes BHP's dividend less reliable than Telstra's.
While Telstra's dividend yield of 6.7% fully franked — or 9.6% grossed up — may not always be this high, I think its business model will support some dividends being paid in the future.
For dividends, Telstra shares should be on your watchlist.
