Could the BHP Group Ltd (ASX: BHP) share price be a buy for income with the resources giant expected to pay a large yield in FY22?
The iron ore price may have fallen over the last several months. However, the iron ore price has recovered a bit of that lost ground. Some of BHP's other commodities are also seeing higher prices, which could help with profit, cashflow and perhaps the dividend.
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How big is the dividend going to be in FY22?
Every analyst comes up with their own prediction about what the dividend could be in the current financial year.
On Commsec, the dividend estimate for BHP in FY22 is an annual dividend of $3.86 per share. That translates to a grossed-up dividend yield of 13%.
The broker Macquarie Group Ltd (ASX: MQG) also has pencilled in a dividend that translates to a grossed-up dividend yield of 13% at the current BHP share price.
However, there are some analysts that think the dividend won't be quite as big. For example, Morgans thinks the FY22 dividend yield will be 11.5%, grossed-up.
At this stage, it seems analysts are expecting that the FY22 dividend will be smaller than the FY21 dividend. However, the above estimates still put the yield at more than 10%.
Could the BHP share price be an opportunity?
Macquarie thinks BHP is a buy, with a price target of $52. Morgans thinks BHP shares are a buy with a price target of $45.70.
Macquarie thinks that BHP shares are valued at under 10x FY22's estimated earnings.
Looking at the iron ore price, which was the key profit generating division for BHP in FY21, the iron ore price went up 2.8% yesterday to US$122.90 per tonne. Remember that iron ore prices had fallen below US$90 several weeks ago. It has recovered quite a bit.
Macquarie notes that Chinese demand for steel seems to be rising whilst the inventory is dropping.
BHP can't really control the global prices for each of its commodities, but it is responsible for much production there is.
In the three months to September 2021, its copper production fell 9% to 376.5kt. Iron ore production dropped 4% year on year to 63.3mt. Metallurgical coal production fell 9% to 8.9mt. Nickel production dropped 20% to 17.8mt.
A few months ago, BHP also announced that it had approved an investment of US$5.7 billion for the Jansen Stage 1 project in Canada – a potash project. Potash is a greener form of fertiliser that is hoped to help the world decarbonise.
