Can BHP stock regain its dividend crown?

Let's dig into the passive income potential of this company.

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BHP Group Ltd (ASX: BHP) stock has an impressive dividend history. Did you know that the ASX mining share was the world's biggest dividend payer in 2021 and 2022?

However, that's not the case anymore. According to a dividend report by Janus Henderson Group PLC (ASX: JHG), BHP was only the sixth largest dividend payer globally in 2023. It was behind Microsoft, Apple, Exxon Mobil, China Construction Bank, and PetroChina.

Without a crystal ball, no one knows for sure what will happen to a company's profit, dividends, or share price. BHP's key commodity is iron ore. A high iron ore price can lead to strong profits, which is why the dividends in 2022 and 2021 were so strong.  

Estimates from the investment bank Goldman Sachs suggest the miner's dividend is headed downward over the next four financial years. If BHP stock's dividend is going to recover in the shorter term, a recovery for iron is key.

Iron ore

According to Trading Economics, in 2024 to date, the iron ore price has dropped from above US$140 per tonne at the start of the year to just under US$100 per tonne in early April. Since then, it has rebounded higher to US$110 per tonne.

The recent rally has occurred as supply concerns offset market commentary about uncertain demand. For example, Fortescue Ltd (ASX: FMG) recently said its shipments for FY24 were likely to be at the lower end of its guidance range because of an ore car derailment and weather disruptions.

However, Trading Economics also noted a "muted demand outlook for ferrous metals in top consumer China amid the prolonged crisis in its real estate sector."

Trading Economics also had this to say about China:

New home prices in the country fell the most in 2015, while the once-giant Country Garden refrained from sharing its earnings report and was forced to push back coupon payments to avoid its first domestic bond default.

On top of that, investors pared expectations of the extent of future stimulus expectations for the steel-intensive construction industry due to Beijing's goal of decreasing the economy's reliance on property development.

In 12 months from now, Trading Economics thinks the iron ore price will be at around US$98 per tonne.

For the foreseeable future, it seems iron ore may not be the saviour of the BHP dividend crown.

Copper

BHP is heavily focused on copper as the material to invest in and expand.

Last week, the business launched a huge and audacious bid worth tens of billions of dollars for Anglo American, with the global miner's quality copper assets being a key attraction. BHP also recently acquired former ASX miner OZ Minerals, which has impressive copper assets in Australia.

Why is copper so appealing? It's an essential material for electrification and decarbonisation. It's needed to expand the electricity grid, build renewable power, make electric vehicles, and for many other uses.

Fund manager L1 recently pointed out two things supporting the possibility of the copper price rising in the future.

First, there's robust demand growth because of "electrification tailwinds, incremental data centre and AI-related demand, as well as the potential for improving global manufacturing activity on easing monetary policy."

Second, there is constrained supply resulting from the insufficient number of new major mines planned over the next decade and the significant decline of the existing production base.

Foolish takeaway

Based on current analyst estimates at financial institutions like Commsec, Goldman Sachs, and UBS, the BHP dividend isn't going to reclaim its global dividend crown anytime soon.

However, acquiring Anglo American would boost its scale and underlying profit materially and that could help BHP stock and the dividend, particularly if copper prices keep increasing.

Motley Fool contributor Tristan Harrison has positions in Fortescue. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Microsoft. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Apple and Microsoft. 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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