September is not being kind to the BHP (ASX:BHP) share price

The BHP share price is falling. What’s going on?

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The BHP Group Ltd (ASX: BHP) share price has fallen by around 10% in September 2021. We’re only a third of the way through of the way through the month.

What could be causing this difficulty for BHP?

There have been a couple of things that may be on investor’s minds.

The dividend?

A few weeks ago, BHP declared a very big dividend for FY21. The board decided to increase the annual dividend by 151% to US$3.01. This came after a big year of profit growth and cashflow.

The final dividend for FY21 was US$2 per share, in Australian dollar terms it was AU$2.715 per share.

The ex-dividend date for that final dividend was 2 September 2021. That means investors on or after 2 September 2021 are no longer entitled to that final dividend, meaning investors could say the BHP share price is worth AU$2.72 less in the short-term.

China turns the screw?

It has been reported by various media, including the Australian Financial Review, that China is reducing its steel production, telling steel producers to cut the amount they’re making.

The AFR reported that China’s Ministry of Industry and Information Technology and the Ministry of Ecology and Environment said production cuts in key steel making cities in the country’s north would be extended until March next year.

This drop in Chinese demand may be an important factor for why the iron ore price has fallen from above US$230 per tonne to below US$140 per tonne.

How important is iron ore for the BHP share price?

In overall terms, BHP’s FY21 result showed a lot of profit. The profit from operations rose 80% to US$25.9 billion, attributable profit increased 42% to US$11.3 billion and net operating cashflow grew 73% to US$27.2 billion.

Looking at the underlying numbers, underlying attributable profit rose 88% to US$17 billion, and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew 69% to US$37.4 billion.

BHP’s underlying EBITDA from the iron ore segment was US$26.3 billion, being 70% of the total. The big miner’s iron ore underlying EBITDA rose 80.6% compared to FY20. BHP’s FY20 iron ore underlying EBITDA was 65.9% of the total. Iron ore has clearly been important in the last two financial years.

Is the BHP share price worth looking at?

One of the only brokers that rate the BHP share price is a buy is Macquarie Group Ltd (ASX: MQG) with a price target of $54. One of the things that Macquarie is focused on is higher expectations for oil prices as the world recovers from COVID-19.

However, there are brokers such as Credit Suisse and Morgans that rate BHP as a hold with lower earnings expectations for its iron ore business.

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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