Should you buy these ASX resources shares?

Credit: iStock

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.

Not keen on resources shares but love dividends? Then check out this top dividend share that has been named as a buy.

The best dividend share to buy in November

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.