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.
Since we consider BHP Group Ltd to be a blue chip stock, or a mature business, we like to look at things like return on invested capital (ROIC) and revenue growth as signs of sustainability. In FY24, BHP Group Ltd had an ROIC of 30.30% and revenue has compounded at -0.7% in recent years. Anything over 10% ROIC is pretty good for a mature-style business, since its cost of capital is likely below that level, so BHP Group Ltd crosses this hurdle.
FMG shares
Fortescue Ltd is an iron ore production and exploration company with assets located in the Pilbara region of Western Australia. The company was founded in 2003 and is headquartered in Perth.
Fortescue’s main operation is in iron ore production, shipping more than 190 million tonnes annually. However, Fortescue has also been ramping up exploration activities across Australia, Argentina, Chile, Brazil, and Kazakhstan for materials like copper, rare earths, and lithium.
This is part of Fortescue’s long-term strategy to take advantage of the shift to renewable energy. Demand for copper, lithium, and other rare earths are expected to skyrocket and Fortescue intends to fill that demand.
BHP share price valuation
We would consider BHP to be a ‘mature’ or ‘blue-chip’ business, so some of the metrics that might be important to us include the debt/equity ratio, average yield, and return on equity, or ROE. For FY24, BHP Group Ltd reported a debt/equity ratio of 45.3%, meaning the company has more equity than debt.
Over the last 5 years, BHP has delivered an average dividend yield of 6.9% per year. This is important to note if you’re looking for income from your investments.
Finally, in FY24, BHP reported an ROE of 19.7%. For a mature business you generally want to see an ROE of more than 10%, so BHP clears this hurdle.
In FY24, Fortescue Ltd reported a debt/equity ratio of 27.6%, meaning the company has more equity than debt.
As for dividends, since 2019 FMG has achieved an average dividend yield of 10.5% per year, and in FY24 reported an ROE of 30.2%
It’s important to keep in mind that these are only a selection of metrics and don’t give us enough information to value the business or make an investment decision. To learn more about valuation, I’d recommend checking out one of our free online investing courses.
