Owning BHP Group Ltd (ASX: BHP) shares has been a compelling pick for passive income over the long-term. The ASX mining share is expected to capitalise on the higher commodity prices in FY26, which should help deliver a bigger dividend.
The company recently released its FY26 second quarter production numbers, which showed that the copper production, realised price and guidance were better than expected. Iron ore production and shipments were also stronger than the market was expecting.
After seeing those latest numbers, the broker UBS updated its expectations for dividend payments and this helps us figure out the income potential of a $12,000 investment.
Expected passive dividend income
UBS projects that BHP could give investors a dividend increase of more than 10% in FY26.
The broker now forecasts that the ASX mining share could hike its annual payout to US$1.25 per share in the 2026 financial year. That would represent a dividend payout ratio of 50%, which is a healthy level of passive income for investors and balances the need for capital spending.
At the time of writing, that translates into a grossed-up dividend yield of 5.4%, including franking credits. That's not the largest the BHP yield has been in the past, but it's still larger than what someone can get from a term deposit.
If someone were to own $12,000 of BHP shares and receive that dividend yield, the payment would translate into income of around $650. Excluding franking credits, that would be cash income of around $450.
UBS said the FY26 first-half dividend is expected to be US 60.8 cents, based on a 50% dividend payout ratio. A higher payout is possible if resource prices remain favourable.
Is this a good time to invest in BHP shares?
On seeing the production figures, UBS was impressed by the update, with the realised price "very strong" at US$5.90 per pound in the second quarter on provisional pricing. BHP sees potential to lift FY27 production guidance at Escondida.
However, the broker noted that BHP's ongoing negotiations with China Minerals Resources Group (CMRG) – the Chinese state buyer of iron ore – is now having "some impact on realised [sold] price" with potential downsides if negotiations are prolonged or deteriorate further.
UBS also noted that BHP added another US$1.2 billion to the expected capital expenditure for the potash project called Jansen, bringing the total expected cost to US$8.4 billion, compared to US$5.7 billion when the project was sanctioned.
While BHP remains confident in the long-term project economics and potash market fundamentals, UBS thinks the second capital expenditure increase may prompt stakeholders to question BHP's ability to execute large, greenfield projects in the context of its large copper growth pipeline in South Australia and Chile.
UBS has a neutral rating on BHP shares, with a continued good outlook for copper on "strong demand/substitution [of supply] dynamics." On the iron ore side of things, UBS said that demand is resilient and this should bolster the profitability of the iron ore business.
