At today's share prices, I would not buy BHP Billiton Limited (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO) for a dividend.
Why?
I think it is obvious that each of the major iron ore mining companies has rallied well beyond what is reasonable, given the outlook for many commodities.
Take a look at this chart of the BHP Billiton share price, versus the Rio Tinto share price and Fortescue Metals share price.
As can be seen, the miners' share prices have stormed higher since the beginning of 2016, when iron ore prices were plugging lows.
Here's the iron ore price over the same period:
As can be seen, the plunge in iron ore prices appears to have helped the BHP, Rio and Fortescue share price.
Now, that's okay.
After all, these three miners have managed to survive the recent falls in iron ore while smaller competitors went out of business, freeing up capacity and balancing market prices. But what happens in three years from now, once new supply is back in the market? Will prices fall even harder?
Another potential nail in the coffin for the BHP, Fortescue and Rio share price is the belief that the recent rally in iron ore prices was only fuelled by restocking at Chinese mills following massive government infrastructure spending. The concerns around China's debt-fuelled spending have been well documented over the past few decades.
After all, it did this to iron ore around 10 years ago…
Talk about an iron ore boom!
Foolish Takeaway
Of course, there is more to any investment than looking at a few charts. However, I think they sum-up the case for BHP, Rio and Fortescue right now. Indeed, although each mining company has recovered strongly in the past 12 months, they could have a long way to go (downward) if China pulls the pin on its enormous infrastructure spending program.
And as for those dividends…well, I'd be looking at other stocks to buy today.
