The S&P/ASX 200 Index (ASX: XJO) mining shares are known to be large dividend payers. In fact, one of them is currently the world's biggest payer of dividends.
But does a big dividend mean that they are good options as ASX dividend shares?
FY21 and FY22 are certainly looking fruitful for shareholders of the large iron ore ASX mining shares of BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), and Fortescue Metals Group Limited (ASX: FMG).
Dividend expectations for FY22
In the current financial year, these are the following estimates for the dividend yields of the big three miners:
- Macquarie is expecting BHP to pay a grossed-up dividend yield of 16.6% in FY22.
- The broker thinks Rio Tinto is going to pay a grossed-up dividend yield of 16.3%.
- Macquarie has projected that Fortescue is going to pay a grossed-up dividend yield of 14% in FY22.
There's no doubt these yields are very large. Not many ASX 200 shares will pay yields as large as that in FY22.
Longer-term shareholders have received a lot of cash from these miners in recent times thanks to the buoyant commodity prices.
Are ASX 200 mining shares attractive income ideas?
Short-term profits and dividend yields from the above names look tempting.
However, a key thing to remember with resource companies is that those commodities can move up and down at any time. Commodity prices are not predictable or consistent.
One year could see big profits and another year could show a major decline. Just look at what happened to the iron ore price towards the end of 2021 and also in 2016.
That's the problem – ASX mining shares generate profit from their relevant commodities and then the dividends are paid from that profit. Dividends can suffer from a major decline in profit if the commodity price drops.
If shareholders don't mind a variable dividend, then an ASX mining share could be an attractive option for income over the longer term.
However, for investors wanting a more consistent level of dividends year to year, ASX mining shares may not be the right place to be looking.
When is a good time to be looking for ASX mining shares?
Investors can choose to buy resource businesses any time they choose. However, I think it could be useful to consider commodity businesses when the price of that commodity has gone down, which may affect sentiment about that company and the sector. A cheaper share price could be better at the low point of the resource cycle.
For example, during the volatility towards the end of 2021, I chose to buy some Fortescue shares at a cheaper price than where they are today.
If the Fortescue share price were to drop below $16 again then I would be interested in adding to my position. I believe that any share price weakness of BHP or Rio Tinto could also make them more tempting.
