BHP Group Ltd (ASX: BHP) shares have had a positive run since December, at one point reaching $40 per share. Now, the share price is declining, and I think it’s time to sell.
BHP is a world-leading resources company, extracting and processing minerals (like iron ore and copper), oil and gas, and has more than 62,000 employees and contractors, primarily in Australia and the Americas. Headquartered in Melbourne, BHP has shares listed on both the ASX and London Stock Exchange (BHP Billiton Plc).
Here are two reasons I think it could be time to sell.
1. Commodity Prices
BHP, along with other companies like Rio Tinto Ltd (ASX: RIO) and Fortescue Metals Group Ltd (ASX: FMG), has benefitted from rising iron ore prices over the last six months.
The rise in prices was partly due to the production impact caused by Topical Cyclone Veronica and the mine disaster that saw Brazilian miner Vale have to cut back production.
With Vale now back in the game and the effects of Tropical Cyclone Veronica becoming a distant memory, iron ore prices have seen less upward pressure.
The growth rate of iron prices has certainly slowed, which will have an adverse impact on BHP. Since 9th April 2019, the share price has been on a steady decline, down about 8.5%.
The BHP share price also took a hit following their quarterly update last month which showed results were flat compared to last year. With commodity prices unlikely to continue higher in the short term, I think BHP shares have reached their limit.
2. Dividend Yield
BHP is not a growth share and isn’t likely to provide impressive capital gains, so investors typically look to companies like BHP for dividend income.
BHP’s current dividend yield is around 4.5% which is better than a high-interest savings account, but higher dividend yields can be found from companies like Commonwealth Bank of Australia Limited (ASX: CBA). While the banks are in danger of having to cut dividends, you could argue BHP is as well if commodity prices fall far enough.
BHP is a price-taker and isn’t a company I would typically invest in. With the share price falling and commodity prices not likely to push much higher, I think now could be a good time to lessen exposure to BHP.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.