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.