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Is BHP a better ASX dividend buy than Westpac?

Westpac Banking Corp (ASX: WBC) has just given its shareholders a pre-Christmas dividend cut, could that mean that BHP Group Ltd (ASX: BHP) is a better dividend buy?

The board of Westpac decided to reduce the dividend by 15% to $0.80 per share. It seems quite certain that the next half-year dividend will be something like $0.80 per share as well. That means the next 12 months of dividends could amount to a grossed-up dividend yield of 8.2%. Not bad.

But it’s not as attractive as it was at the start of the year when the share price was lower and the dividend was higher.

However, resources giant BHP now could claim to be a better option for dividends. Excluding special dividends, it currently has a trailing grossed-up dividend yield of 7.5%.

Westpac’s yield may be about 10% higher at the moment, but the bank’s dividend could potentially be cut again in FY20. BHP’s dividend has increased each year since 2016 and some analysts think there could be another ordinary dividend increase from BHP in FY20.

I’d rather have a quite-high dividend that’s rising rather than a very-high yield that’s falling.

BHP offers a different earnings profile to the banks. The big four ASX banks such as Westpac are linked to the strength of the Australian economy whereas the BHP’s earnings are linked to commodity prices. I like BHP’s diverse operations of iron, petroleum, copper, coal and potash. As resources companies go, BHP is a decent option. 

However, resource businesses can have their own problems when demand plummets. BHP’s dividend dropped over 75% from 2015 to 2016.

Foolish takeaway

Westpac’s dividend is clearly nowhere near as safe as some investors thought. But BHP is not exactly a fortress either. If I were to buy BHP it would definitely be different to my other dividend shares, but resource businesses can’t really offer income security.

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Motley Fool contributor Tristan Harrison 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.