Is BHP stock a good long-term investment?

Here's my view on whether the miner is worth owning for the long-term.

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Many Aussies own BHP Group Ltd (ASX: BHP) stock, directly or indirectly. The ASX mining share is by far the biggest business in Australia, with a market capitalisation of $230 billion.

However, being the biggest doesn't mean it's the best to own today.

Let's explore whether the mining giant is a good investment to make right now for the long term. Or is now not the right time to buy?

Decent shareholder returns

Let me say first that BHP stock has been a solid performer for shareholders.

Of course, past performance is not a reliable indicator of future performance, but in the past 10 years, it has delivered an average shareholder return per annum of 10.8%, according to CMC Markets. That soundly beats the return of the Vanguard Australian Shares Index ETF (ASX: VAS), which has returned an average of 7.6% over the past decade.

Including franking credits would tilt the scale toward BHP even more because of its large, fully franked dividend yield.

Are BHP shares a good long-term buy?

One of the difficulties for BHP in the coming years is its reliance on commodity prices. If resource prices fall from where they are, then BHP's profit will drop and that will likely lead to a lower BHP share price.

As I recently wrote, UBS predicts that BHP's net profit after tax (NPAT) will fall from US$13.5 billion in FY24 to US$9.66 billion in FY28, an almost 30% drop.

Investors usually value an ASX share based on its current profit and expected future profit.

BHP heavily relies on iron ore for the bulk of its profit, but increasing supply from Australia and Africa (such as the Simandou project) could hurt the iron ore price.

Thankfully for BHP stock, the copper price is surging amid increasing demand due to electrification and decarbonisation efforts by countries around the world. That's good news for the miner's copper division.

In my mind, it's certainly possible to make good returns with BHP shares, but I'd want to be sure I buy at a good time. There's more to ASX share returns than just the dividend – we're not buying term deposits. The share price and capital growth are important factors to consider.

The BHP share price is almost exactly where it was a year ago and is trading at a similar level to way back in April 2011.

If we look at the BHP stock chart below, we can see there have been periods of heavy declines. I don't know when the next steep drop will be, but ASX mining shares do seem to go through down periods of regularly.

That time of share price weakness can end up being the best time to invest for the strongest long-term dividend yields and the potential for capital gains.

If it were me, I'd wait for a cheaper BHP share price, such as what we saw in October and November 2021. I think it makes more sense to buy other ASX shares at the moment.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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