Is the BHP Group Ltd (ASX: BHP) share price a buy?
The BHP share price has fallen 11% over the past month, but it's still up 7.6% over the past year.
The excitement may be wearing off for investors with commodity prices unlikely to go any higher for the foreseeable future with iron ore performing very strongly during FY19.
US President Donald Trump's ongoing trade war with China is causing a bit of uncertainty in the market with no sign of the disputes ending.
Coal hasn't been performing well either with lower prices this year and petroleum has been a bit mixed.
I think investors may have been attracted to the shareholder return initiatives by BHP of the huge dividends and share buy-backs, but cycles can change very quickly for cyclical companies, so I don't think we can count on these large special payments to continue consistently over the medium-term.
One of the good things about owning resource shares is that they can provide uncorrelated returns to the general economy, although that's not to say the returns will be counter-cyclical either.
BHP has many economic benefits to being one of the biggest resource businesses in the world, particularly in terms of lower production costs. BHP also has one of the best dividend yields and best dividend history records in the commodity sector. I appreciate management's commitment to try to sustainably grow its dividend payment.
Foolish takeaway
BHP is trading at 12x FY20's estimated earnings with an estimated forward grossed-up dividend yield of 8.5% for FY20.
Unless commodity prices stay where they are for the foreseeable future I'm not sure it's the right time to buy shares of BHP. I think it would be better to wait until sentiment against BHP is lower, like it was during 2016.
