You have to do a fair amount of work in rearranging the dividend numbers for BHP (BHP) to understand why this diversified commodities producer made my list of safe dividend stocks paying 6% or more. (Subscribers to my paid JubakAM .com site got the whole list of 5.)
First, throw that 11.02% dividend yield reported on Yahoo Finance and other sources.
As part of its corporate strategy of moving away from fossil fuels and investing in expanding existing copper production and in opening its first potash mine (in Canada at a cost of $5.7 billion), BHP sold its petroleum unit. Part of the big “dividend” distribution in fiscal 2021 and 2022 is a result of the company distributing the shares in the purchaser it acquired in payment for that deal to BHP shareholders. Of the $7.11 paid in dividends in fiscal 2022, for example, $3.86 came from the distribution of those shares. If you buy BHP now, you can’t expect a repeat of that distribution of shares. (BHP also sold its U.S. onshore petroleum assets in 2019.)
So the question is what dividend payout can you expect from BHP in 2023?
I think we’re looking at copper prices to climb modestly in the year ahead on rising demand from electric vehicles, wind farms, and expansion of the electric grid. Looking at a reasonable forecast for revenue and earnings growth and the company’s policy f putting 50% of attributable profit toward dividend payouts, I think a dividend of $3.70 is reasonable for fiscal 2023. With the stock trading at today’s $61.84 that puts the yield slightly below my 6% target for this list. If the stock dips to $61, buy it for a 6.1% yield.
Going forward, I think you can expect revenue to climb at BHP as global demand for copper outstrips copper production. Over the next five years, there’s a substantial shortfall in new copper mines that’s a result of companies cutting back on capital spending during the Pandemic. BHP is one of the few copper miners with new capacity scheduled to come into production during that period. And, of course, the Jansen potash mine will go from a cash-eating hole in the ground to a revenue-generating mine in this period.
The company’s average annual revenue growth over the last three years is 13.7%. Average annual growth in operating income has been 26.15%.
I will be adding these shares to my Dividend Portfolio on December 1.