Does the BHP (ASX:BHP) share price offer good FY22 dividend income potential?

Might BHP be an option to consider for dividend income over the next year?

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Could the BHP Group Ltd (ASX: BHP) share price be a good one to think about for dividend income potential in FY22?

BHP is one of the largest businesses in the world. According to the ASX, it has a market capitalisation of $145 billion.

What does the BHP dividend look like in FY22?

The outlook for the BHP dividend is dependent on the profit generation, which is obviously quite reliant on the commodity prices that it deals with including iron ore, copper, petroleum and coal.

Macquarie Group Ltd (ASX: MQG) is one of the positive brokers on BHP at this level. It has predicted that the commodities giant will pay a dividend of $3.61 per share in FY22, which translates to a grossed-up dividend yield of around 10%. Macquarie’s profit prediction puts the BHP share price at 11x FY22’s earnings. The broker rates BHP as a buy.

But then there’s also price forecasts that aren’t as rosy.

UBS has a hold rating on BHP shares, with a price target of $42 (suggesting a double digit decline of the share price over the next 12 months). Iron ore prices are expected to drop over the next few years as the demand decreases and supply improves. Despite expecting a lower dividend from BHP, UBS seems to believe that the resources giant will make more profit than Macquarie’s forecast. On UBS’ numbers, BHP has a grossed-up FY22 yield of 9.7% and the BHP share price is valued at just over 9x FY22’s estimated earnings.

BHP’s record production

The resources giant released its operational review this week for the year ended 30 June 2021. There was record production achieved at its ‘Western Australia Iron Ore (WAIO)’ and Goonyella. Olympic Dam achieved both the highest annual copper production since the acquisition by BHP in 2005 and the highest gold production ever for the operation.

FY21 saw iron ore production increase 2% to 253.5 Mt. In the final quarter of FY21, iron production increased 9% to 65.2 Mt.

But there may be more to come, according to management.

The BHP CEO Mike Henry said:

South Flank, the largest and one of the most technically-advanced iron ore mines in Australia, began production in May and will boost the overall quality of BHP’s iron ore product suite. In the same month, the Ruby project in Trinidad and Tobago started production. Atlantis Phase 3 in the Gulf of Mexico and the Spence expansion in Chile began production in the first half of the year.

BHP is in great shape. Our operations are performing well, continue our track record of disciplined capital allocation, and our portfolio is positively leveraged to the megatrends of decarbonisation, electrification and population growth.

In FY22, BHP is expecting its iron ore production to be fairly similar to FY21, with production guidance range of between dropping 2% up to an increase of 2%.

FY22 copper production is expected to see a performance of between a 3% fall to an 8% rise.

Should you invest $1,000 in BHP right now?

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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