By Rhiannon Hoyle 

SYDNEY-- BHP Billiton Ltd. sought to satisfy yield-hungry investors with the promise of higher returns despite a sharp fall in first-half profit, reinforcing a shift among the world's largest mining companies to give more cash back to investors as a decadelong commodities boom fades.

BHP on Tuesday pledged to maintain or increase its dividend even after a proposed demerger later this year which will see the world's largest miner by market value hive off some unwanted assets into a separate company called South32, that analysts estimate will be worth around US$15 billion.

Like its peers in the mining sector, BHP has been shelving expansion projects and cutting capital spending after a supply glut emerged in many commodities, including iron ore and oil, two big contributors to the company's earnings. But despite a 47% fall in first-half net profit, to US$4.27 billion, it still raised its interim dividend by 5% to US$0.62 a share.

"If our shareholders approve the demerger, we do not plan to rebase or lower this dividend, which implies, all other things be equal, a higher payout ratio," BHP Chief Executive Andrew Mackenzie said. "And that's before you consider that South32 will be set up to deliver additional cash returns through dividends to their shareholders, which, of course, is all our shareholders at the moment."

Cautious mining executives are now looking to woo fund managers with beefed-up payouts instead of promises of endless growth, following a string of multibillion-dollar write-downs caused by the slump in prices of key commodities. Confidence in mining companies has also been shaken by signs of moderating resources demand growth from China.

Anglo-Australian miner Rio Tinto PLC recently said it would buy back US$2 billion of its shares in 2015 and pushed up its annual dividend 12%, while hinting it could increase returns in future.

Already last August, Switzerland-based miner-and-trader Glencore PLC announced a US$1 billion buyback and raised its dividend by 11%. "Growth for growth's sake isn't for us," its Chief Executive Ivan Glasenberg--himself a major shareholder--declared.

Some miners have raised eyebrows by clinging onto dividends even as their profits fall sharply.

Anglo American PLC, the world's fifth-largest diversified miner by market value, this month said it would maintain its full-year dividend at US$0.85 a share, despite recording a US$2.51 billion annual loss because of multibillion-dollar write-downs against its operations.

For sure, miners are having to weigh calls from shareholders for higher cash returns against their desire to maintain a strong balance sheet. BHP's Mr. Mackenzie has made it clear he wants to keep what the company calls a 'solid-A' credit rating, and has said a share buyback isn't an immediate priority. The company will reduce its capital spending by 17% to US$12.6 billion in its fiscal year to June--15% below its own earlier estimates.

Still, Mr. Mackenzie said he's confident BHP can cut costs and bolster cash generation after the planned demerger.

"I think we have pitched it correctly," Mr. Mackenzie said of BHP's capital management plans. Shares in the company, which is listed in both the U.K. and Australia, closed 2.9% higher in Sydney.

Still, not all investors are enamored by the shift in strategy among the biggest miners.

"They are basically feeding the market what it wants at the moment but, in my view, you are throwing away capital that could be used for future advancement," said Robert Hook, a Melbourne-based fund manager at SG Hiscock & Co. He sold his holdings in BHP last month.

Some investors say it is difficult to gauge exactly how BHP's capital-returns program will proceed until there is further clarity on the shape of the company post-demerger. BHP is set to release more details on the spinoff next month.

The assets BHP plans to jettison were among the strongest performing in the first half. Its aluminum, manganese and nickel division, that will form the rump of the new South32 company, has been benefiting from higher prices and lower costs. The division more than doubled its earnings before interest, taxes, depreciation, and amortization to US$1.07 billion.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

Access Investor Kit for BHP Billiton Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=GB0000566504

Access Investor Kit for BHP Billiton Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US05545E2090

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

BHP (ASX:BHP)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more BHP Charts.
BHP (ASX:BHP)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more BHP Charts.