BHP share price in focus
BHP Group (formerly known as BHP Billiton) is a diversified natural resources company founded in 1885 that produces commodities for energy use and manufacturing.
BHP’s core 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). While these categories make up the bulk of revenue and profit, the company is also diversifying into other areas such as fertiliser.
BHP shares have long been viewed as a reliable dividend-paying investment and are a common member of Australian share portfolios. It’s also one of the largest companies in Australia so if you own an ASX 200 ETF or LIC, or even have money in superannuation, chances are you already have some exposure to BHP shares.
The appeal of ASX Materials shares
The S&P/ASX200 Materials Index (ASX: XMJ) has averaged 2.93% per year in capital growth over the last 5 years. That compares to the ASX 200 index which has returned 3.80% per year 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 goes through good periods, it’s really the dividends that most investors are interested in when assessing materials shares. After all, it’s what they’ve been known for for many years. Over the last 5 years the BHP dividend yield has averaged 6.86% per year.
Aussie materials companies like BHP 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
The S&P/ASX200 Consumer Discretionary Index (ASX: XDJ) has returned 2.93% per year over the last 5 years compared to 3.80% per year from the broader ASX 200. The consumer discretionary sector covers a broad range of goods and services, so it can be hard to compare companies in this group. However, here are a few things you might want to consider when investing in a consumer discretionary company like BHP.
Timing
Consumer discretionary companies usually have their best performance when interest rates are low. Just think about it – when rates are low, you’re more likely to go out and buy those ‘toys’ or things that you may not really need, but you certainly want. That could be new tech, travel, or your new power tools – it all comes under this category.
Despite the current high interest rate environment, BHP has still managed to grow revenue by -0.7% per year over the last three years.
Dividends
The dividends you’ll receive can vary with the current economic environment, but historically many of the big ASX consumer discretionary shares have been reliable dividend payers.
BHP offers a current dividend yield of 5.5% and over the last 5 years has averaged 6.9%.
Familiarity
We’re often advised to invest in what we know. Consumer discretionary shares may be a good fit then, as these tend to be companies that we see on a daily basis and their business model is easy to understand. You probably have a better idea how BHP Group Ltd make their money then some niche tech company or a B2B industrials company.
This doesn’t necessarily mean performance will be any good, but they’re definitely easier to get your head around when you’re starting out investing.
