The resources sector has once again been a good place to invest in 2019. A good number of shares in the sector have provided investors with very strong total returns in 2019.
I believe this demonstrates why having a little exposure to the sector can be a very good thing for a portfolio.
With that in mind, should you be buying these resources shares?
BHP Group Ltd (ASX: BHP)
One of the first shares investors will turn to in the resources sector is BHP. And there's a very good reason for this. The mining giant's portfolio contains some of the best assets in the world. These assets have been generating significant free cash flow for BHP, with the majority of it being returned to shareholders through dividends and buybacks. I expect more of the same in FY 2020, which makes it my top resources pick for 2020. Another bonus is its generous dividend yield. I estimate that its shares currently offer a fully franked forward 6.1% dividend yield.
Orocobre Limited (ASX: ORE)
Orocobre is a leading lithium miner. Its flagship project is the Olaroz Project in Argentina. This is a world class asset and has the potential to generate bumper profits for the company. However, due to an oversupply of the battery-making ingredient, lithium prices have fallen materially over the last 12 months. Whilst Orocobre could be a good option when prices reach an inflection point, I would suggest investors wait for a sustained improvement in market conditions before considering an investment.
Rio Tinto Limited (ASX: RIO)
Another favourite for investors in the resources sector is Rio Tinto. As with BHP, Rio Tinto owns a number of world class assets across several different commodities. It has also been generating strong free cash flow again this year and has returned the majority of it to shareholders. If iron ore prices remain favourable in the near term, I suspect the miner will reward shareholders with generous dividends again in 2020. In light of this, I would class its shares as a buy if you're confident on iron ore prices.
