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Does the 11% BHP (ASX:BHP) dividend yield make it good value?

Shares in the iron ore giant boast a double digit yield right now…
The post Does the 11% BHP (ASX:BHP) dividend yield make it good value? appeared first on The Motley Fool Australia. –

The BHP Group Ltd (ASX: BHP) share price is trading at a handy dividend yield right now. Shares in the iron ore mining giant boast an 11.1% yield as at Tuesday’s close.

Most double-digit yields would have income investors licking their lips, but is BHP good value based on its current numbers?

Does the BHP dividend yield make it good value?

Perhaps the best reference point is to compare the “big three” iron ore producers: BHP, Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG).

Shares in all three have struggled throughout 2021, and all three boasts solid dividend yields right now. The big question, however, is whether BHP shares look to be good value at current yields.

Sliding share prices and rising yields are certainly intertwined and one reason why the BHP dividend yield is so high. After all, a dividend yield is simply taking annualised actual or expected dividends and dividing them by the share price.

That means if a company announces a bumper dividend based on last year’s results, and then sees significant share price declines, its dividend yield will be through the roof.

Fortescue shareholders know this better than anyone. The Fortescue share price is down 40.3% in 2021 so far but boasts an impressive 24.2% dividend yield. That came after Fortescue doubled its dividend in its August full-year results after a strong performance in FY2020.

It also goes to show why buying ASX shares simply based on dividend yields can be risky business. A 24.2% yield looks great, but losing $10 in share price losses to gain a $3.58 per share full-year dividend doesn’t seem ideal.

So, BHP’s dividend yield is lower than Fortescue. However, the BHP share price has also lost 15.5% compared to Fortescue’s steep decline. What about Rio Tinto?

Rio shares are down 16.0% in 2021 and trading at a 9.4% dividend yield prior to Wednesday’s open. That means Rio’s share price has fallen more and its yield still remains marginally below BHP’s.

Is the ASX resources share good value?

In terms of value, one broker certainly sees it that way. Analysts from Macquarie Group Ltd (ASX: MQG) currently rate BHP with a ‘buy’ rating and a price target of $56 per share.

Given the current $36.39 price level, that implies significant upside to the Aussie mining share. However, Macquarie things commodities outside of iron ore, such as coal, oil, copper and nickel, as key to its current outlook.

Foolish takeaway

The BHP dividend yield is very healthy right now. However, investors need to consider more than just the yield on offer when deciding whether to buy.

Looking purely at the above numbers, BHP shares appear to be trading at a similar relative position to Rio Tinto. Fortescue seems to be more of an outlier with steeper share price declines and a doubling of its dividend compounding its current yield figures.

The big three iron ore miners have seen steep share price declines in 2021 and all are trading at low dividend yields and price to earnings (P/E) ratios right now.

Investors need to do their research beyond just simple statistics to determine whether or not BHP’s dividend yield makes it good value at the moment.

The post Does the 11% BHP (ASX:BHP) dividend yield make it good value? appeared first on The Motley Fool Australia.

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More reading

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How China’s energy crisis could be good for BHP (ASX:BHP) and Rio Tinto (ASX:RIO)
2 beaten-up ASX shares that could be buys in October 2021

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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