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    • The BHP Dividend Doesn’t Appeal to Me – Here’s Why
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    The BHP Dividend Doesn’t Appeal to Me – Here’s Why

    Umito Posted on

    The BHP Dividend Doesn’t Appeal to Me – Here’s Why

    Image source: Getty Images

    Owners of BHP Group Ltd. (ASX:BHP) stocks may have become accustomed to large passive income payments on ASX mining share was sent to investors each year. But the BHP dividend doesn’t attract me.

    As we can see from the chart above, the last five years have been a volatile period for the sector. ASX iron ore share.

    Large dividends were paid during this period. However, BHP’s dividend has been on a downward trend recently, with FY24 result see this decline continue. The annual dividend for FY24 was US$1.46 per share, down from US$1.70 per share in FY23, representing a decrease of 14%.

    There are three reasons why I’m not looking to invest for BHP’s future dividends.

    Further BHP dividend cuts expected

    The most obvious reason why passive income is unattractive is that the ASX mining stock is expected to cut its dividend further in future reporting periods.

    UBS analysts, who spend a lot of time analyzing the resources giant, estimate that the company’s annual dividend per share will be reduced to US$1.17 in FY25, which would represent a reduction of 20% from one year to the next.

    The broker predicts that by FY27, BHP’s dividend per share will fall to US$1.09, then fall back to US$1.03 in FY28.

    If I was investing in an ASX share for passive income, I would prefer to see growth rather than a constant reduction in payouts.

    Iron ore is BHP’s key product for now, butt UBS noted that potash prices have fallen for 10 consecutive quarters due to weak demand and robust supply. The broker expects the potash market to be in significant surplus in the 2030s, which risks having an impact on the profitability of the Jansen project in Canada.

    Will the price of iron ore continue to fall?

    The price of iron ore has been notoriously difficult to predict in recent years, with the strengths and weaknesses of China purchases occurring at different times.

    Before the American elections, investors were worried that the weakness of the Chinese economy would weaken demand for iron ore.

    The prospect of imminent US tariffs on China following Donald Trump’s victory is a factor that should not be ignored. In my opinion, this could harm China’s economy and manufacturing/construction industry.

    Some also suggest that the Trump administration may want Australia takea more active role in “countering Chinese aggression in the Pacific”, which I would not expect to lead to an increase in Chinese purchases of Australian iron ore.

    Overall, I think the iron ore price will likely be lower rather than higher over the next four years, which will hurt BHP’s potential dividends.

    Samarco costs

    The Samarco Dam disaster in Brazil has been a cloud hanging over BHP for some time.

    BHP recently announced a final settlement with public authorities. While $7.9 billion has already been spent between 2016 and September 2024, the deal includes $18 billion in payments over 20 years and additional performance obligations with an estimated financial value of around $5.8 billion. .

    It is true that significant damages are being paid, but I believe this will reduce the amount of BHP’s dividend that would otherwise have been paid without this compensation, thereby further reducing the attractiveness of the payment.

    Umito
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