Are ASX 200 mining shares good options for dividends?

ASX miners are known for being big dividend payers. Are they good ideas for income?

| More on:
Miner holding cash which represents dividends.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • ASX mining shares are paying out big dividends to investors at the moment
  • Resource businesses are exposed to the respective commodity prices
  • Investors wanting consistent dividends may want to look elsewhere

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.

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Resources Shares

An older man wearing glasses and a pink shirt sits back on his lounge with his hands behind his head and blowing air out of his cheeks.
Resources Shares

ASX lithium stocks avoid share price shock amid commodities lashing

Core Lithium and Allkem are outperforming their major ASX resources peers today.

Read more »

two men in hard hats and high visibility jackets look together at a laptop screen that one of the men in holding at a mine site.
Resources Shares

Why is the Fortescue share price slipping 5% today?

What's impacting the miner's shares on Wednesday?

Read more »

A man wearing a shirt, tie and hard hat sits in an office and marks dates in his diary.
Resources Shares

Why did the Rio Tinto share price hit the brakes in FY22?

Rio Tinto shares recorded one of its most volatile years on record.

Read more »

Three miners wearing hard hats and high vis vests take a break on site at a mine as the Fortescue share price drops in FY22
Resources Shares

Broker names 2 ASX mining shares to buy in FY23

These ASX mining shares have been named as buys for FY 2023...

Read more »

a female miner looks straight ahead at the camera wearing a hard hat, protective goggles and a high visibility vest standing in from of a mine site and looking seriously with direct eye contact.
Resources Shares

How did the South32 share price perform in FY22?

Off to a new financial year for the diversified miner.

Read more »

a man in a hard hat, high visibility vest and gloves holds a stop sign and holds up a hand in a halt gesture on a road.
Share Market News

What’s happening with Firefinch shares following a $13 million lithium sale?

Firefinch shares are going nowhere today.

Read more »

A GWR Group female employee in a hard hat and overalls with high visibility stripes sits at the wheel of a large mining vehicle with mining equipment in the background.
Resources Shares

Why has the Pilbara Minerals share price soared 57% in FY22?

How did the Pilbara Minerals share price perform in the financial year?

Read more »

Three miners wearing hard hats and high vis vests take a break on site at a mine as the Fortescue share price drops in FY22
Resources Shares

Why did the Fortescue share price sink in FY22?

FY22 saw Fortescue’s fortunes follow the iron ore price, but the mining giant also advanced its green ambitions.

Read more »