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 FY23, 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
One way to have a ‘fast read’ of where the BHP share price is could be to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a shareholder, but it can fluctuate year-to-year or between payments. Currently, BHP Group Ltd shares have a dividend yield of around 5.04%, compared to its 5-year average of 6.86%. Put simply, BHP shares are trading below their historical average dividend yield. Be careful how you interpret this information though – it could mean that dividends have fallen, or that the share price is increasing, or both. In the case of BHP, last year’s dividend was less than the 3-year average, so the dividend has been falling.
FMG is offering a historical dividend yield of around 10.08%, which compares to its 5-year average of 10.52%.The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets. Both of these models would be a better way to value the FMG share price.”)
