Last week, BHP Group Ltd (ASX: BHP) shares were in the spotlight when the mining giant released its FY 2023 results.
For the 12 months ended 30 June, BHP reported a 17% decline in revenue to US$53.8 billion and a 31% decline in underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) to US$28 billion.
While disappointing on paper, this was largely in line with expectations and driven by a combination of inflationary pressures on costs and lower prices of key commodities.
As you might have expected, BHP's weaker profits have put pressure on its dividend. The BHP board declared a fully franked final dividend of 80 US cents per share, bringing its total dividend for FY 2023 to US$1.70 per share. This represents a sizeable 48% decline from FY 2022's dividend.
But that was FY 2023, what about the future?
Where next for the BHP dividend?
Following the release of the miner's results, analysts at Goldman Sachs have been adjusting their forecasts and have now included their expectations for FY 2028.
First up, in FY 2024, the broker is now expecting the BHP dividend to come in lower at 119 US cents (185.4 Australian cents) per share. Based on the current BHP share price of $43.02, this implies a dividend yield of 4.3%.
Goldman then expects another cut to 106 US cents (165.1 Australian cents) per share in FY 2025. This will mean a yield of 3.8% for income investors.
The trend is expected to continue in FY 2026, with the broker forecasting a 97 US cents (151.1 Australian cents) per share dividend from BHP. This equates to a 3.5% dividend yield.
A final (modest) cut is then forecast in FY 2027 to 96 US cents (149.5 Australian cents) per share. This would mean a yield of 3.45% for investors.
Finally, the broker believes it will be time to increase the BHP dividend in FY 2028. It has pencilled in a fully franked 101 US cents (157.3 Australian cents) per share dividend for that financial year. This represents a 3.65% dividend yield.
In summary, that will be:
- FY 2024 – 119 US cents – 4.3% yield
- FY 2025 – 106 US cents – 3.8% yield
- FY 2026 – 97 US cents – 3.5% yield
- FY 2027 – 96 US cents – 3.45% yield
- FY 2028 – 101 US cents – 3.65% yield
However, it is always worth remembering that forecasting commodity prices is notoriously difficult. Supply disruptions or a global recession, for example, could lead to higher or lower than forecast prices for copper and iron. This would have a big impact on BHP's earnings and ultimately its dividends. As a result, investors may want to just use the above as a guide and not as gospel.
Are BHP shares a buy?
Although the broker thinks the BHP dividend may have peaked for the time being, that isn't stopping it from recommending its shares as a buy.
Goldman currently has a buy rating and a $46.10 price target on the Big Australian's shares. This implies a potential upside of 7.15% for investors over the next 12 months.
