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Highlights
- Ex-Dividend Impact: BHP shares dropped nearly 1% as they went ex-dividend for the interim dividend.
- Financial Performance: Half-year results showed a 23% decline in underlying attributable profit, dropping to US$5.1 billion.
- Free Cash Flow Decline: Free cash flow decreased by 30% to US$2.6 billion due to lower earnings and increased capital expenditures.
- Dividend Cut: The interim dividend was reduced by 30.5% to 50 US cents per share (approximately 79 Australian cents).
- Upcoming Payout: Eligible shareholders will receive the dividend on March 27.
- Future Outlook: Goldman Sachs forecasts a final dividend and maintains a buy rating with a target price of AU$47.40, indicating potential long-term gains.
BHP Group Ltd (ASX:BHP) saw its share price dip by nearly 1% to AU$39.25 in early Thursday trading. The decline comes as the mining titan’s stock goes ex-dividend for its forthcoming interim dividend, a move that locks in dividend rights for existing shareholders while leaving new buyers ineligible for the upcoming payout.
Ex-dividend trading is a standard market adjustment. On the ex-dividend date, the share price typically falls by approximately the dividend amount, since new investors purchasing the stock after this date will not receive the imminent dividend payment. Although any drop in share price might seem discouraging, many seasoned investors view this adjustment as a routine and even beneficial aspect of dividend investing, ensuring that current shareholders receive their entitled payout without the risk of dilution.
The recent dip in BHP’s share price is underpinned by several notable financial updates. In its half-year results released last month, BHP reported a 23% decline in underlying attributable profit, which fell to US$5.1 billion. This downturn was largely driven by lower prices for iron ore and steelmaking coal, which failed to offset gains from higher copper prices. The drop in commodity prices has weighed heavily on the company's earnings, contributing to an overall more cautious outlook.
Another significant factor affecting the share price is BHP’s free cash flow performance. For the half-year period, the company generated US$2.6 billion in free cash flow—a 30% decrease compared to the corresponding period previously. Management attributed this decline to lower overall earnings combined with a 10% increase in capital and exploration expenditures. The reduction in free cash flow has put additional pressure on the company’s financial metrics, prompting the board to reassess its dividend policy.
In response to these challenging conditions, the BHP board opted to cut its fully franked interim dividend by 30.5% to an eight-year low of 50 US cents per share. At current exchange rates, this amount translates to roughly 79 Australian cents per share. Despite the significant cut, the resulting dividend yield remains relatively attractive at around 2% based on yesterday’s closing price. For instance, an investment of AU$20,000 would yield approximately AU$400 from the interim dividend, providing a steady income stream for long-term shareholders.
Eligible shareholders can look forward to receiving this dividend on March 27, with the company ensuring that all procedural requirements are met for a smooth disbursement. Looking further ahead, market analysts are keeping a close eye on BHP’s upcoming full-year performance. According to forecasts by Goldman Sachs, a final dividend of 52 US cents per share is expected to be announced with the full year results in August. When combined with the interim payout, this would bring the total dividend to 102 US cents per share, or 161 Australian cents, for fiscal year 2025—a yield of approximately 4.1%.
Goldman Sachs remains optimistic about BHP's long-term prospects, maintaining a buy rating on the stock with a price target of AU$47.40 per share. This projection suggests a potential upside of nearly 21% from current levels, offering a promising outlook for investors despite the current short-term price adjustments.
