BHP Group Ltd (ASX: BHP) shares have garnered significant attention following the miner's recent quarterly results.
With a share price of $44.75 in late Friday trading, investors are no doubt keen to know if BHP shares present a good buying opportunity. Let's dive into what the brokers are saying about the mining giant.
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Are BHP shares good value?
According to broker Goldman Sachs, BHP shares are currently trading at an attractive level. The investment bank has a buy rating with a $49/share price target on the company over the next 12 months, a potential upside of 9.5%. For a $10,000 investment, this could mean growth to around $10,950 if the forecast proves accurate.
Then, there's the miner's dividend potential.
BHP is renowned for its generous dividends. With a trailing dividend yield currently at 5.08%, it remains a strong choice for income-focused investors.
According to my colleague James last month, consensus estimates are for BHP to pay fully franked dividends of $2.30 per share in FY 2024. This translates to a dividend yield of around 5.1%, adding $510 in dividends to a $10,000 investment over the next 12 months.
What are analysts saying?
Goldman Sachs notes that BHP is trading at approximately 6x its next 12-month projected EBITDA, slightly above the 5.5x multiple of rival mining giant Rio Tinto Ltd (ASX: RIO).
In my opinion, this premium is supported by BHP's strong operating margins and presence, particularly in the Pilbara iron ore region. According to the OECD, the Pilbara region contributed 3.4% of Australia's gross domestic product (GDP) in 2021.
BHP also announced last year its plans to invest $4 billion in the Pilbara region to develop c.550MW of wind, solar and battery storage to reduce operating costs.
Goldman also justified the premium by highlighting BHP's potential for growing copper production in Chile and South Australia.
Despite some concerns about limited upside following recent gains, brokers still see value in BHP shares. In April, Morgans placed an add rating with a $48.30 price target, implying a potential upside of 7.9%.
Similarly, Citi rates BHP as a buy with a $48.00 price target, suggesting a total return of more than 10% when including dividends.
Goldman Sachs maintains its buy rating with a $49.00 price target, as mentioned earlier.
Passive income from BHP shares
BHP shares are a popular choice for passive income investors. Let's run the numbers. Assuming you purchase 100 shares at $44.75, you would invest $4,475 of your hard-earned capital.
Goldman Sachs forecasts fully franked dividends of US$1.45 (A$2.20) per share for FY 2024, resulting in A$220 in passive income. For FY 2025, the expected dividends of US$1.26 (A$1.97) per share would yield A$197. Over the next few years, dividends are projected to slightly decrease but still provide solid returns, as per Goldman's estimates:
- FY 2026: US$1.22 (A$1.85) per share, yielding A$185
- FY 2027: US$1.12 (A$1.70) per share, yielding A$170
- FY 2028: US$1.07 (A$1.62) per share, yielding A$162
Note: All AUD figures are quoted at the exchange rate of $1 AUD = $0.66 USD at the time of writing.
Foolish takeaway
BHP's recent quarterly results have prompted positive feedback from brokers, highlighting its attractive valuation, strong dividend yield, and growth potential in copper production.
With a current share price of $44.75 and a trailing dividend yield of 5.08%, BHP shares may be an opportunity for both growth and passive income investors. The mining giant certainly appears to have the backing of our top brokers.
