Why is BHP Group (ASX:BHP) an important blue chip stock to track?

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Summary

  • BHP Group is a dual-listed company with a diverse portfolio of right assets in right commodities.
  • The company has a payout ratio of 80%, reflecting its strategy to create value for shareholders by providing substantial returns.

BHP Group Ltd (NYSE:BHP, ASX:BHP) is committed to its strategy focused on creating long-term value and high returns with the best capabilities, best commodities and best assets.

The world-leading resources company is engaged in the discovery, development, production and marketing of minerals and oil & gas. BHP is among the leading producers of iron ore, coal, copper, and other commodities. The company, which operates under a dual-listed company structure, has substantial interests in oil & gas assets. 

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BHP’s diverse portfolio with strong development potential

BHP has a diverse portfolio of world-class assets in the most attractive commodities across the globe with low operation costs and potential for future growth. The company has broad development options and exploration tenements in the world's most prospective basins.

To drive the highest return on investment, the group has invested in long-life, expandable, and low-cost assets.

Additionally, in order to be among the leading players, the company leverages integrated systems and technology while adopting high standards of governance and transparency. 

Since 2016, the company has reinforced its balance sheet by lowering its debt load by US$17 billion. It has reinjected US$27 billion in development options and returned over US$29 billion to its shareholders.

The group is committed to producing strong commercial, sustainable, and social outcomes for its shareholders, communities, and society.

Interesting Read: Explained: Climate Change and the Role of Mining Industry

The right assets in the right commodities

BHP has a robust portfolio in Americas and Australia. Its division, Minerals Americas is a well-known copper & zinc concentrate and thermal coal producer. The Minerals Australia segment, focused on iron ore, copper, coal and nickel, has operations in New South Wales, Queensland, South Australia, and Western Australia.  

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Copper:

Chile’s Escondida mine, Pampa Norte in the Atacama Desert in northern Chile, Antamina in Peru, and Australia's Olympic Dam are the leading copper assets of BHP.

The group holds a 57.5% interest in Escondida and a 33.75% interest in Antamina copper projects. The Olympic dam, holding the largest ore bodies in the world, is among the largest copper, gold, and uranium deposits in the world.

Iron Ore:

BHP owns a 50% interest in Samarco Mineracao S.A. (Samarco), a Brazil-based NOJV iron ore operation. The operations at the project site are under suspension since November 2015 due to a tragic dam failure accident.

Its Western Australia Iron Ore (Australia) asset includes five mines and four processing hubs with more than 1,000km rail infrastructure in the Pilbara region.

Oil & Gas:

The group holds high-value assets in the Gulf of Mexico, Trinidad and Tobago, Algeria, and Australia. At the same time, the resource player also holds exploration licences in Mexico, the Gulf of Mexico, Canada, Barbados, and Trinidad and Tobago.

Coal:

The group holds one-third stakes in Cerrejón in Colombia. It is the owner, operator and marketer of leading open-cut export energy coal mines.

Queensland Coal and New South Wales Energy Coal under the Minerals Australia business are located in the Bowen Basin and the highly prospective region of Hunter Valley.

The company also holds interests in potash and nickel assets.

Must Read: How crude oil dynamics influence the upstream and downstream sectors

Performance and Use of Profits

BHP’s return on equity (ROE) is similar to the industry's average return of 15%. The group’s net income growth in the last five years is more than 40%. The management has made some significant decisions and strategy that have significantly driven growth.

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On comparing the company's growth side by side with the corresponding industry growth, the performance of BHP's net income growth is far better than the industry's growth figure of 28%. The company's core focus on creating value for shareholders is directly linked to its earnings growth. The group has a payout ratio of 80% -- that means it keeps only 20% of its profits and returns most of its earnings to the shareholders.

Relevant Read: What’s brewing in the mining industry as ESG debate heats up

The group is determined to share its profits with shareholder, which can be clearly inferred from the long dividend-paying history of at least 10 years. 

What is BHP ADR?

Citibank, NA acts as the depository for BHP Group ADR, trading under the ticker “BHP” on the New York Stock Exchange (NYSE).

American Depository Receipts (ADRs) provide an opportunity to the US investors to enhance their investment exposure to non-US stocks. They are a type of equity security that simplifies foreign investing for American investors.

ADRs are issued by American brokers or banks that represent shares of a foreign company held by them in the home stock market of the foreign company. ADRs can be listed in leading stock exchanges such as the NYSE or can be traded over the counter.

How attractive is BHP’s dividend yield?

As on 3 June 2021 prices, BHP has a dividend yield of 6.98%. The resource player made a cash dividend payment of US$2.02 per share on 23 March 2021.  

What was BHP’s highest share price?

BHP stock reached an all-time high of US$99.13 per share on 11 April 2011. The stock has appreciated more than 50% in the last one year, with an average share price of US$62.10 per share as of 3 June 2021.


 


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