Mining powerhouse BHP Group (LSE: BHP) has been a bit of a cash cow for investors in recent years. Last financial year, for example, it rewarded shareholders with total regular dividends of USD $3.25 per share, which translates to a yield of about 13% at the current share price. Is the company set to continue paying out monster dividends going forward? Let’s take a look at the BHP dividend forecast for the years ahead.
BHP dividend forecasts
First, there are a couple of things to explain.
The first is that BHP’s financial year ends on 30 June. So, the year ending 30 June 2023 is ‘FY2023’. The following year is ‘FY2024’.
The second is that BHP reports its financials, and declares its dividends, in US dollars. So, all forecasts are in dollars. This is important to note because the GBP/USD exchange rate is quite volatile at the moment. In other words, the yield on offer today could be quite different to the yield when the dividends are actually paid if exchange rates fluctuate.
As for the forecasts, right now City analysts expect BHP to pay out $2.09 per share for FY2023 and $1.86 per share for FY2024.
These projected payouts are lower than the $3.25 paid last financial year. However, they still translate to very high yields. At today’s share price and exchange rate, the projected payout for FY2023 equates to a prospective yield of 8.3% while the estimated payout for FY2024 translates to a prospective yield of 7.4%.
Assuming that these dividend forecasts are accurate (analysts’ estimates can be way off the mark at times), BHP looks set to continue being a cash cow for investors.
Are BHP shares worth buying for income?
Would I buy BHP shares for the big dividends on offer? The answer to that question is actually no.
One reason I’d pass on BHP is that the stock is ‘cyclical’ (mining companies’ profits rise and fall depending on commodity prices) and, therefore, quite volatile. For example, between mid-2014 and early 2016, BHP’s share price fell from near 1,600p to near 500p. I don’t see the point of collecting a 8% yield if the share price can potentially fall around 70% like it did here. I’d need many years of dividends to make up for that kind of capital loss. I prefer dividend stocks that are a little more stable in nature.
Another issue for me is the fact that BHP tends to cut its dividend when business conditions are challenging. This is not ideal from an income-investing perspective. I prefer to invest in companies that consistently increase their dividend payouts year after year. I can rely on these kinds of businesses to provide me with a certain level of income.
So, while the yield here does look very attractive, I won’t be buying the shares for my portfolio any time soon. Ultimately, I’d prefer to invest in what I regard as ‘safer’ dividend stocks.