The BHP Group Ltd (ASX:BHP) share price is down 23.9% since the start of 2024. Is it time that you added BHP shares to your watchlist?

BHP share price in focus

BHP Group (formerly BHP Billiton) is a diversified natural resources company founded in 1885 that produces commodities for energy use and manufacturing, and is moving into fertilisers.

BHP’s principal business lines are mineral exploration and production. BHP’s assets, operations and interests are separated into three focus areas: copper and related minerals (e.g. gold, uranium, silver, zinc, etc.); iron ore; and coal (i.e. metallurgical and energy).

BHP shares are often seen as a reliable dividend-paying investment and are a common constituent of an ASX share portfolio. If you own a popular ETF or LIC, or invest with Industry Super, chances are you have some exposure to BHP shares already.

The case for Resources shares

The S&P/ASX200 Materials Index (ASX: XMJ) has averaged 3.43% per year in capital growth over the last 5 years. That compares to the average of all ASX sectors of 3.51% over the same period. Let’s take a look at why you might want a materials company like BHP in your portfolio.

Big dividends

While the capital growth has been good over the last few years, it’s really the dividends that most investors are interested in. Over the last 5 years the BHP dividend yield has averaged 5.36%per year.

Aussie materials companies have developed a good reputation of being reliable dividend payers. However, these are still commodity-driven businesses so the dividends (like the share price) can fluctuate quite a bit.

Growth potential

Mining is one of the backbones of our modern economy and the demand for things like iron ore, copper, and lithium is not going away any time soon.

In fact, the demand for a lot of precious metals is rapidly growing as the economy transitions to renewable energy. A lot of these materials are needed for things like electric car batteries and solar panels. Companies like BHP and Rio Tinto are investing a lot of money to put themselves at the forefront of this oncoming wave of demand.

BHP share price valuation

One way to have a ‘quick read’ of where the BHP share price is, is to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a share holder, but it can fluctuate year-to-year or between payments. Currently, BHP Group Ltd shares have a dividend yield of around 5.69%, compared to its 5-year average of 5.36%. Put simply, BHP shares are trading above their historical average dividend yield.

The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets. Both of these models would be a better way to value the share price.