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Should you buy these ASX resources shares?

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Over the last 12 months the S&P/ASX 200 Resources (Index: ^AXJR) (ASX: XJR) has pushed approximately 8.5% higher. In comparison, the benchmark S&P/ASX 200 is down 2.3%.

And if you were to remove the resources component from the benchmark index, this decline would be notably steeper.

I believe this demonstrates why having a little exposure to the resources sector can be a good thing for a portfolio.

With that in mind, should you be buying these resources shares?

BHP Billiton Limited (ASX: BHP)

I think that BHP Billiton is arguably the best resources share to own if you are looking for exposure to the sector. This is because of the quality and diversification of its operations and the fact that its shares provide a generous dividend yield. At present BHP Billiton’s shares offer a trailing fully franked 4.8% dividend. This is not inclusive of the recently announced plans to return US$10.4 billion to its shareholders through the combination of an off-market buy-back and a special dividend.

Fortescue Metals Group Limited ASX: FMG

This iron ore producer’s shares have come under significant pressure this year and are down 15% year to date. Investors have been selling Fortescue’s shares due to the widening discount between its low grade ore and the benchmark 62% fines. Higher grade ore has been in favour in China due to a crackdown on pollution, however, there are signs that the discount is finally narrowing. If it continues to narrow then Fortescue could be dirt cheap at these levels. I would suggest investors monitor its updates and keep an eye on the discount rate.

Rio Tinto Limited (ASX: RIO)

Not far behind BHP Billiton would have to be Rio Tinto. I think its high quality operations and generous yield make it a great option for investors. Especially given how management intends to return approximately $3.2 billion of post-tax coal disposal proceeds to its shareholders. If a trade war doesn’t derail global economic growth and soften demand for its key commodities, then I believe Rio Tinto is well-positioned to continue its solid run for the next few years.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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