The BHP Group Ltd (ASX: BHP) share price has seen plenty of volatility during 2023. But, will the company's dividend payout be volatile as well?
Shares in the ASX 200 diversified miner have climbed around 9% this year, despite the craziness that has hit the broader ASX share market amid higher interest rates and strong inflation.
Profits and dividends don't typically change as much or as rapidly as share prices do. It can also take some time for economic effects to flow through.
BHP intends to pay at least 50% of its net profit each year to shareholders, so positive or negative impacts on profit will affect the BHP dividend.
Dividend expectations
Commsec projections suggest that BHP could generate A$4.39 of earnings per share (EPS) and then pay an annual dividend per share of A$3.16.
In FY22, it paid total cash dividends of US$3.25 per share, which was a dividend payout ratio of 77%. In Australian dollar terms, it paid A$4.63 per share, according to the ASX.
What this suggests is that the BHP annual dividend could be cut by around 32% in FY23.
What's going on with BHP shares?
BHP has a number of operating commodities, including iron ore, copper, nickel and coal.
The price of each commodity moves up and down, but what happens with iron ore is particularly important because, over the last few years, it has been that division that has generated the lion's share of the earnings before interest and tax (EBIT).
In the first quarter of FY23, iron ore production increased 3% year over year to 65.1 mt.
However, the problem is that some commodities had been seeing deteriorating prices in the first half of FY23.
But, there is a chance that estimates could be revised higher if the current iron ore price is maintained or even increases over the rest of FY23. According to Commsec, the iron ore futures price was US$110 per tonne on 23 December 2022.
Another factor that could influence the BHP dividend in FY23 is the company's acquisition of OZ Minerals Limited (ASX: OZL). This could boost the company's copper earnings, but it also comes at an enterprise value of $9.6 billion, which will be funded by BHP's balance sheet, with both cash and debt.
It will be interesting to see what BHP's dividend payout ratio is for FY23 after using A$9.6 billion of its financial capacity.
However, BHP will no doubt be hoping that the expected synergies can boost future profits and dividends.
