When it comes to investing, you will often read that "past performance is no guarantee of future returns." This is an important (and true) statement for investors to take into account when investing in ASX shares. Just because a share has risen strongly one year, doesn't mean it will do the same the next year.
However, it can still pay to look at past events to see how they have impacted the performance of certain shares previously.
For example, over the last five years, BHP Group Ltd (ASX: BHP) shares have been on fire and generated an average total return of 17% per annum for investors. This would have turned a $1,000 investment in 2018 into approximately $2,200 today.
This market-beating return has been underpinned by strong commodity prices, which have driven the Big Australian's shares higher and allowed it to pay big dividends to shareholders.
What sort of return could BHP shares generate in 2023?
It's quite clear that for BHP shares to have a successful year, the mining giant needs commodity prices to be favourable.
The good news is that China's reopening from COVID lockdowns and restrictions is expected to be supportive of demand for many commodities such as copper, iron ore, and oil. Particularly if it pour billions into stimulus programs to reignite its faltering economic growth.
In fact, copper has just hit a six-month high on the London Metal Exchange thanks to Chinese demand optimism. And while iron ore dipped yesterday, it was still fetching US$116.25 a tonne on the Singapore exchange. The latter is significantly higher than BHP's WAIO unit cost guidance of US$18-19 per tonne.
In light of this, the mining giant appears well-positioned to generate bumper free cash flow again in FY 2023, which could bode well for BHP shares.
Potential returns
According to a note out of Macquarie, its analysts have an outperform rating and $50.00 price target on the company's shares.
Based on the current BHP share price, this implies modest upside of 5.1% for investors in 2023.
However, that doesn't include dividends. Macquarie is forecasting a fully franked $2.88 per share dividend this year. This equates to a 6% dividend yield, which brings the total potential return on offer with BHP shares to over 11%.
While this might not be as great a return as we have seen over the last five years, it would still turn a $1,000 investment into over $1,100. Which isn't to be sniffed at in the current environment!
