Things can change very quickly in the mining sector due to swings in both spot and forecast commodity prices.
Fortunately for shareholders of BHP Group Ltd (ASX: BHP), one leading broker believes the outlook for iron ore has just improved.
According to a note out of Goldman Sachs, its analysts believe iron ore will fall into a significant deficit in the coming months, boosting the price of the steel making ingredient meaningfully. The broker explained:
The GS commodity team recently increased their iron ore price forecasts to US$120/t for 2023 (from US$100/t) with a 3m target of US$150/t (vs. spot at US$125/t) with the expectation that the seaborne market should swing into significant deficit of 43Mt in 1H23 on the back of lower seasonal supply from Australia and Brazil and an expected recovery in Chinese steel volumes.
BHP dividend forecast
In response to the above, let's look at what this might mean for the BHP dividend in the coming years.
As a reminder, in FY 2022, BHP paid shareholders a fully franked US$3.25 per share dividend.
In line with what the miner declared in the first-half, Goldman expects a softer BHP dividend year over year in FY 2023.
It has pencilled in a fully franked US$2.11 (A$3.20) dividend this year. Based on the current BHP share price of $46.59, this will mean a generous 6.9% yield for investors.
Another cut is expected in FY 2024, with Goldman forecasting a US$1.70 (A$2.58) per share dividend. This still represents an above average dividend yield of 5.5% based on current prices.
Finally, the trend is expected to continue in FY 2025, with the broker forecasting another dividend cut. Goldman expects a US$1.21 (A$1.84) per share fully franked dividend for that year. That equates to a more modest 4% dividend yield for investors.
