The BHP share price has now fallen far enough for it to be trading on a fully franked dividend yield of 5 per cent

979

It has been a tough few weeks for the BHP Billiton (ASX:BHP) share price, falling from around $35 back down to close to $31.

The 11 per cent fall in the BHP share price has come despite the mining giant reporting a huge jump in full year profits, and a record final dividend.

Trump’s tariff wars are clearly weighing on BHP shares, as indeed they are on the ASX200 index. The ASX is trading lower Friday as it looks on track for its seventh fall in a row.

The China-America tariff wars threaten to slow global economic growth, something that would impact mining shares who rely on the ongoing Chinese appetite for commodities to further fuel their growth.

Another reason for the fall in the BHP share price is because the market is thinking FY18 could be as good as it gets for the company.

BHP has had the ultimate tailwinds of rising commodity prices, increased production and a falling Australian dollar.

Next year those headwinds abate, with BHP guiding to flat volumes, lower free cashflow and increased capital expenditure.

BHP shares rangebound

Since bottoming at almost $15 in early 2016, BHP shares have a had a great run, more than doubling over that period.

But mining shares are cyclical, and it looks more than ever like BHP shares are likely to be rangebound for a period, perhaps trading between $30 and $33.

I’ve long been calling BHP shares a dividend play, believing this mining cycle has got further to run. Despite Trump’s tariffs, it’s hard to see global economic growth suddenly grinding to a halt.

BHP shares now yield over 5 per cent

BHP’s fully year FY18 dividend was $1.58. With BHP ASX shares now around $31, they trade on a fully franked dividend of just over 5 per cent, or almost 7.3 per cent when grossed up for franking credits.

For income investors, especially amongst the ASX 200 constituents, BHP shares are one of the better options, especially for investors who are overweight bank shares.

Sure, you’re not going to get a dividend yield quite as high as the Commonwealth Bank of Australia‘s (ASX:CBA) 6.15 per cent fully franked yield, but neither do you get a lot of the headwinds bank shares are facing.

Just don’t expect much in the way of capital appreciation. For that, you’ll have to look elsewhere.

BHP Billiton shares don’t look cheap, but these 3 shares do…

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

BHP Billiton was not one of them, but the list does include one tiny gold mining stock, and the company one top fund manager calls the cheapest stock in the ASX 100.

Find out why these 3 Cheap and Good Stocks could be better buys than BHP Billiton. But you better hurry… these stocks may not stay cheap for long.

See the 3 stocks

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Avatar
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au