At the current BHP Group Ltd (ASX: BHP) share price, could it be a juggernaut for dividends in 2022?
BHP is one of the biggest dividend payers on the ASX. With the business unifying its UK and Australia business onto the ASX, it's probably going to be paying the biggest dividend to shareholders (in total dollar terms).
But investors just need to know about the dividend yield on a single BHP share basis and what that means for their portfolio.
How big will the BHP dividend yield be in 2022?
There are different estimates for how big the dividend is going to be for FY22.
Commsec numbers suggest the FY22 dividend is going to be $3.78 per share. That translates into a grossed-up dividend yield of 11%.
Macquarie thinks that BHP will have a FY22 grossed-up dividend yield of 10%. Citi believes that BHP is going to pay a grossed-up dividend yield of 11.3%.
BHP is benefiting from a strong environment for many of its commodities. The iron ore price is steadily climbing. Oil has recovered from the COVID crash. There is an expectation of strong long-term demand for copper and nickel as the world decarbonises.
The S&P/ASX 200 Index (ASX: XJO) resources giant earns its revenue by producing vast amounts of commodities and selling them. Higher resource prices largely translate into extra profit, aside from paying the necessary government taxes. Higher earnings can help the BHP share price and the dividend.
Production remains strong
The company is taking advantage of the higher prices by continuing to achieve high levels of production volume.
In the six months to December 2021, copper production was down 12% to 742kt, but the company said that was due to lower volumes at Olympic Dam due to the planned smelter maintenance campaign, which was completed in January 2022.
The iron ore half-year production was up by 1% to 129.4 mt thanks to strong supply chain performance, increased ore car availability and the continued ramp-up of South Flank.
Petroleum production rose 5% year on year to 53.2 million barrels of oil equivalent.
Oil to be replaced by potash
BHP is on track to divest its oil business to Woodside Petroleum Limited (ASX: WPL).
But it's planning to grow with another commodity – potash. This is a type of fertiliser that is used to boost land productivity, but it is meant have lower emissions than alternatives.
The commodity giant says that potash provides BHP with increased leverage to key global mega-trends including a rising population, changing diets, decarbonisation and improving environmental stewardship.
Jansen is the name of the project which comes with a series of high-returning growth options. It's expected to generate an underlying earnings before interest, tax, depreciation and amortisation (EBITDA) margin of around 70%. It's expected to become one of the world's largest potash operations.
Potash could play a major part in influencing the BHP share price and dividend in the coming decades.
