The BHP Group Ltd (ASX: BHP) share price was under the spotlight last year as the ASX share market suffered through significantly elevated volatility.
BHP managed to outperform last year – will it be able to do the same again?
Before answering that question, I think it's worth noting that investors shouldn't forget about the dividend from BHP. Not only is it a very large payment each year, but it can play an important part in the company's overall return.
How big will the BHP dividend be in FY23?
Due to the fact that BHP typically trades on a low price/earnings (P/E) ratio, this helpfully pushes up the prospective dividend yield.
Firstly, let's look at what the projection for the 2023 dividend is. The estimate on Commsec is as good as any to use.
In FY23 it's forecast to pay an annual dividend per share of $3.13.
If it does end up paying this amount, the grossed-up dividend yield from BHP could be almost 10% at the current BHP share price.
Excluding franking credits, that cash return from the dividend could be around 7%. That's a good return by itself.
Can 2023 lead to capital gains?
It's an interesting question because the BHP share price is currently close to a six-month high after rising by around 20% since the end of October 2022.
I think it's definitely possible that the BHP share price could go up. Resource prices are quite unpredictable, which also means that share prices of ASX mining shares are unpredictable.
How will the iron ore price perform? What will copper do next? Can BHP's coal earnings stay strong?
I think that the COVID reopening of China could lead to a recovery of economic activity in the country, which may then mean stronger demand for commodities that Australia and BHP can provide.
Can investors become more optimistic about the outlook for resources? Certainly. I think the last couple of years have shown that investors can be exuberant about sectors.
With a possible global recession on the cards, I'm not sure if the iron ore price can rally much further unless China commits to a significant infrastructure program to reinvigorate the Chinese economy after a long time of lockdowns. I wouldn't make an investment decision based on that.
According to Commsec, the broker Goldman Sachs currently has a neutral rating on the resources giant, with a target price of $42.90. That implies a decline of the BHP share price in the mid-single digits.
My take on the BHP share price
At this valuation level, I'd be very happy if I were already a shareholder. However, after its recent run, I think it would be wise to wait for a lower price.
It's likely to keep paying a good dividend, but I think it's worthwhile being careful about not overpaying for BHP shares by 10% just to get a 10% dividend.
