The BHP Group Ltd (ASX: BHP) was been one of the S&P/ASX 200 Index (ASX: XJO)’s best blue chip performers over the past few months, and indeed, year or two. BHP shares are today climbing to new all-time highs, up 3% and trading at $51.59 at the time of writing. That’s pretty much at the company’s new historical high watermark of $51.75 that we saw earlier today.
So what’s driving BHP to these new heights? Well, two words pretty much sum it up: commodity prices. The prices of the raw materials that BHP extracts and processes have been on an absolute tear in recent months. Iron ore is now well above the historically high level of US$200 a tonne, trading at US$209 a tonne at the time of writing. BHP’s largest operations are in this space.
So obviously higher prices lead to dramatically fatter profit margins for the miner. BHP remains one of the lowest-cost producers of iron ore in the world. That means almost all of these extra profits will flow straight to the company’s bottom line. What’s more, copper prices are also exploding. As my Fool colleague Brendon covered this morning, copper futures are now at an all-time high of US$4.75 per pound. Copper is not BHP’s largest operation, but it still stands to benefit from these highs.
High commodity prices equal high BHP share price returns
That puts the Big Australian up 8.3% in the past week alone, 12% in the past month, 20% year to date, and 64% over the last 12 months. BHP is also up close to 100% since the lows we saw in March last year, and 185% over the past 5 years. All of those returns don’t include dividends either, which BHP has, both historically and recently, been extremely generous with.
They also don’t include the 2015 spin-off of South32 Ltd (ASX: S32). At the time of this spinoff, BHP shareholders received 1 share of South32 for every share of BHP held. The South32 share price has not done quite as well as BHP but is still up more than 30% since the spin-off, and close to 60% in the past year.
So if an investor bought $10,000 worth of BHP shares last year, how much would they be worth today? Well, $10,000 would have picked you up roughly 317 shares this time last year. Those 317 shares would today be worth about $16,362.50. Investors also would have received two dividends over the past year as well, equating to $2.07 per share. That would be worth an extra $655 in dividend returns as well (plus some franking credits to boot). In summary, it has been a very good year to own the Big Australian.