Could BHP Group Ltd (ASX: BHP) be the best ASX dividend share?
It's certainly one of the biggest in the world. After the recent unification of the UK business under the ASX business, it now has a market capitalisation of $244 billion according to the ASX.
In the FY22 half-year result, BHP decided that it was going to pay US$7.6 billion out as a total dividend to shareholders. In per-share terms, the dividend per share was US$1.50. This represented a dividend payout ratio of 78%.
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Is the BHP the best ASX dividend share?
BHP is now the biggest dividend payer on the ASX. But the biggest may not necessarily mean the best.
In terms of growth, BHP did reveal a very big increase to the dividend. The FY22 half-year dividend was grown by 49% to US$1.50 per share. There may not be many S&P/ASX 200 Index (ASX: XJO) shares that grow the dividend as much as BHP in this reporting season.
However, assuming BHP maintains a similar dividend payout ratio, the dividend can change quite significantly year to year. That's because the profit can change quite a lot too.
Attributable profit rose 144% to US$9.4 billion, net operating cash flow rose 42% to US$13.28 billion. Earnings per share (EPS) went up 144% to US$1.866.
We only have to go back to FY20 see an example of when profit and dividends can go backwards. FY20 attributable profit fell 4% to US$7.96 billion, whilst the dividend per share fell 10% to US$1.20.
So, the dividend can grow a lot. But it can also fall as well, depending on what happens to commodity prices and BHP profit.
Diversification
There are some commodity businesses that just rely on one type of commodity like Fortescue Metals Group Limited (ASX: FMG) or Evolution Mining Ltd (ASX: EVN).
But BHP doesn't focus on just one commodity. It has a few different commodities, which means there are different commodity cycles going on within the business. BHP has iron ore, copper, nickel and coal operations. It's divesting its petroleum division to Woodside Petroleum Limited (ASX: WPL), whilst working on it's Jansen potash project to open up a new earnings stream.
So, whilst the BHP dividend can be volatile, it may be less than something like Fortescue which just cut its half-year dividend by 41%.
Is the BHP share price a buy?
Opinions are mixed on the business after the result. Macquarie reckons it's a buy, with a price target of $54. Whilst it's expecting a grossed-up dividend yield of 12.7% in FY22, the FY23 grossed-up dividend yield is expected to fall to 8.5%.
Morgans rates the business as a 'hold', with a price target of $48.70. This broker is expecting a grossed-up dividend yield of 11.1% in FY22 and 8.5% in FY23.
