Shares in BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO) have struggled to make headway after going ex-dividend earlier this month.
Sky-high iron ore prices saw record dividends flow through to investors, with an average dividend yield of 9.33% between the BHP share price and the other 2 ASX mining giants.
However, shares typically fall on the ex-dividend date to reflect the dividend being paid. The greater the dividend, the greater the fall.
Meanwhile, over in China…
China has made its move to tighten environmental regulations over the next few years. Earlier in March, the country's industrial hub, Tangshan, was ordered to limit or halt production on days when a heavy pollution alert was in place.
Producers were ordered to reduce the overall emission of air pollutants by 50 per cent. There are increasing concerns that this could see the iron ore market return to a surplus. Last week, Morgan Stanley analysts warned that this move could be the beginning of major iron ore headwinds.
Despite the announcement from Chinese authorities, the iron ore spot price has remained relatively buoyant at US$166 per tonne, slightly down from its high of US$173 per tonne in early March.
Broker rates BHP share price, Fortescue and Rio Tinto as 'outperform'
Macquarie Group Ltd (ASX: MQG) believes there could be stronger demand and prices for commodities, including iron ore, manganese and thermal coal. The broker upgraded its forecast for the respective materials by 18%, 22% and 17%.
The broker notes that its preference for the BHP over Rio Tinto has narrowed. But reiterates an outperform rating with a $57 target for the BHP share price. This represents an upside of 25% at today's prices, excluding its 6.10% dividend yield.
Similarly, the broker's update retained an outperform rating for Fortescue. However, it has lowered its target price from $25.50 to $23.00 on rolling forward to FY22 earnings multiples. This represents an upside of 13% at today's prices. Fortescue also pays a market-leading dividend of 13.10%.
Finally, Macquarie is also bullish on Rio Tinto shares but reduced its target price from $142 to $140 to reflect movements in exchange rates. If Rio Tinto meets the price target, it will return 25% from today's prices.
