Are BHP Group Ltd (ASX: BHP) shares worth buying for the 6.75% dividend yield?
BHP is a resources giant with core pillars of iron ore, petroleum, copper and coal. It’s one of the biggest resource businesses in the world and has a reputation for being a good income payer.
What’s been going on recently with BHP?
The BHP share price has fallen around 10% since mid-August 2020. Last month it reported its FY20 result.
BHP announced that its FY20 continuing operations underlying EBITDA (click here to learn what EBITDA means) fell by 5% to US$22 billion.
Continuing operating profit from its operations fell 11% to US$14.4 billion. Its continuing underlying attributable profit dropped 4% to US$9 billion. Continuing operating cash flow fell 10% to US$15.7 billion. Its total attributable profit was down 4% to $7.96 billion.
The result was propped up by the strength of the iron ore price and continuing demand from China. Australian iron ore miners, including BHP, are being helped by the unfortunate COVID-19 situation – particularly in Brazil where the coronavirus is hurting Brazilian Vale’s production and shipments. Without iron ore, BHP would have had a pretty tough year due to COVID-19. Oil and coal have had a tough time this year.
BHP said that its final dividend was US$0.55 per share. That brought the final dividend to US$1.20 per share, which is 10% lower than 2019.
Are BHP shares worth buying for dividends?
Including franking credits, BHP offers a dividend yield of around 6.75%. However, I believe that a resource business’ dividend isn’t that secure. A dividend should be based on the profit generated – or else the company may pay out too much. But a resource company’s profit can be volatile over the medium term as profit can bounce around due to changing commodity prices. Therefore, the dividend could be volatile as well. But I like that BHP continues to look for new projects.
It could be clever to buy BHP shares if its share price fell heavily – like in 2016. You’d then benefit from a high dividend yield on the original cost when commodity prices recover. However, I don’t believe now is a good time to buy. I would rather buy ASX dividend shares that can provide more consistent dividends like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which I wrote about here.
