BHP Group Ltd (ASX: BHP) has enjoyed a strong run on the Australian share market this year.
Shares in the mining giant are trading around $56.42 on Wednesday, representing an annual gain of over 30%.
If I had $5,000 to invest today, would I put it into BHP shares even after this strong rise?
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Why I'd consider BHP shares
One reason I like BHP is its ability to generate substantial amounts of cash from its existing operations.
In FY26, the company generated US$9.8 billion in free cash flow, an increase of 83% from the previous year.
That's an impressive amount of money, and it gives BHP plenty of options when deciding how to reward shareholders and grow its business.
It can invest in improving existing operations, develop new projects, pay dividends, or strengthen its balance sheet.
I think this financial flexibility is one of BHP's greatest advantages. Mining is a cyclical industry, with commodity prices often changing significantly over relatively short periods.
But with its strong financial position, high-quality operations, and competitive production costs, BHP is well placed to keep investing in its future even when market conditions become more challenging.
And, in my opinion, there are opportunities for the company to become considerably more profitable over the next decade.
BHP has been investing in expanding its copper production, with projects across Australia and the Americas expected to support future growth.
Its Jansen potash project in Canada is also approaching production, providing another potential source of earnings.
However, I'm equally interested in BHP's ability to improve the performance of its existing assets. In FY26, average unit costs across its major operations declined 6%, demonstrating how operational improvements can contribute to stronger profitability.
I think continuing that progress, alongside disciplined investment in new projects, could deliver attractive returns over time.
What about the valuation?
While I remain positive on BHP's long-term prospects, I don't think its shares are an obvious bargain at current levels.
According to the latest CommSec consensus forecasts, BHP is expected to generate earnings per share of $3.31 in FY27, followed by $3.29 in FY28.
At $56.42, that puts the company on a forward price-to-earnings (P/E) ratio of approximately 17 times for both years.
That's a reasonable valuation for a business of BHP's quality, although earnings are expected to remain relatively flat in the near term.
However, analysts forecast an improvement in FY29, which would bring the forward P/E ratio down to approximately 13.9 times.
I think that looks more attractive, assuming those earnings expectations are achieved.
There is also the dividend outlook to consider. Based on CommSec forecasts, BHP is expected to pay dividends of $2.07 per share in FY27, rising to $2.43 in FY29.
At the current share price, that represents potential dividend yields of approximately 3.7% and 4.3%, respectively.
Of course, these forecasts depend heavily on commodity prices, which BHP cannot control.
If global demand weakens or supply increases, earnings and dividends could fall below expectations.
That's something I would be comfortable accepting as a long-term investor, provided BHP continues managing its finances carefully and investing for attractive returns.
Foolish takeaway
I would be happy to invest $5,000 into BHP shares at current levels.
I think the company has the financial strength, operational experience, and growth opportunities to deliver attractive shareholder returns over the next decade.
While the valuation isn't especially cheap, I believe BHP's ability to generate cash and invest through different commodity cycles justifies paying a reasonable price for its shares.
