The world's biggest miner is under pressure to slash dividend payouts to investors when it releases its half-year results later this month, as the price of resources like iron ore and oil plummet.
Falling commodity prices, multi-billion-dollar write-downs and the mine disaster in Brazil have crunched BHP Billiton's share price and earnings.
Fat Prophets resources analyst, David Lennox, said BHP is expected to post a loss for the first half of the 2016 financial year.
"They will report a loss primarily on the back of the fact that they will have to write-down and the company has already flagged impairment charges against their assets," Mr Lennox told The Business.
"So we are expecting earnings to come in at zero to minus $250 million for the half year result."
Last week credit rating agency Standard & Poor's cut BHP's A+ credit rating to A because of lower commodity prices.
It warned of another downgrade after the half year results on February 23 if the miner does not abandon its progressive dividend policy, the promise to raise or maintain dividend payments, if commodity prices keep falling.
BHP warned to get rid of current dividend policy
Giuliano Sala Tenna, investment adviser at Bell Potter Securities, said BHP should get rid of the policy.
"I think it confirms what a lot of market commentators have been saying for a long time now that it's a little bit foolhardy for BHP to be blindly wedded to a progressive dividend policy when clearly the earnings are under a lot of pressure," Mr Sala Tenna told The Business.
Last year the big miner paid out $US6.6 billion in dividends. It made $US1.9 billion in net profit in 2015, down nearly 90 per cent from 2014.
Aberdeen Asset Management is BHP's second biggest investor in Australia and it believes the progressive dividend policy is unsustainable.
Aberdeen's head of Asia Pacific Credit Research, John Manning, said he expected BHP to halve interim dividend payouts from $US0.62 to $US0.31.
"What they need to do is make the future distributions more sustainable," Mr Manning said.
"That, in our mind, moves it away from a progressive toward a percentage payout ratio, something along the lines of a percentage of free cashflow."
But Matthew Haupt, portfolio manager at Wilson Asset Management, said the loss of the progressive dividend would be a blow for mum and dad investors.
"Retail investors like dividends so I think if BHP cut their progressive dividend it [will] definitely send a signal to the retail investor about the future income from this company," Mr Haupt said.
At the last November annual general meeting BHP chairman Jac Nasser refused to guarantee the progressive dividend policy as the company faced a barrage of questions from the media.
Mr Lennox thinks the miner will not cut dividends until its annual results are released in August. He said no dividend cut could mean BHP would have to rely on debt to pay dividends to investors.
"There is no doubt if they do borrow heavily or borrow more to actually pay out a current dividend rather than perhaps use money to focus on growth then you would expect the credit ratings [agencies] would look at downgrading them a little further," Mr Lennox said.
Mr Haupt thinks BHP will not cut its dividend until later in the year at the annual results, even if that means another credit ratings downgrade.
"Even if they cut the dividend by 50 per cent so they will still be pushing along the bottom end of the S&P range so there is a definite possibility the rating gets cut to A- after the result," Mr Haupt said.
Mr Manning wants to see BHP Billiton take urgent action to keep its A credit rating by cutting dividends and capital spending.
"The cards have laid on the table by the ratings agencies. Now is the time for management to step up to the table and to act," Mr Manning said.
More pain predicted for share price
BHP Billiton's woes have seen its share price drop by half over the past year to a low of $14.06. Barclays predicts the share price could fall to $10.50.
Mr Haupt said Wilson Asset Management would be prepared to buy BHP shares if the price fell below $10.
"Under $10 you would definitely have to have a look at it because the company produces quite a bit of cash and I think the underlying assets are of acquired value," Mr Haupt said.
Mr Sala Tenna said there are more risks for BHP if the resources rout continues.
"BHP does have leverage to the energy markets so if we see a recovery in those prices that would signal a short term trough in their share price, but certainly the outlook for iron ore and copper looks fairly challenged over the next 12 months," Mr Sala Tenna said.
Despite the challenges, Mr Manning says Aberdeen Asset Management plans to keep investing in BHP Billiton.
"They are in our minds one of the strongest mining companies globally so they are very well positioned if we do go into a sustained downturn," he said.