The BHP Group Ltd (ASX: BHP) share price has seen periods of pain and gain over the last few years, as we can see on the chart below.
In this article, I'm going to look at whether it's a good time to buy into the ASX mining share.
The business has been drifting lower since its 2023 high in January when it was trading close to $50 a share. BHP closed trading last week at $44.34 a share.
With the share price now sitting much closer to its 52-week low than its 52-week high, let's consider the pros and cons of buying BHP shares right now.
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Positives to buying BHP shares
One of the best reasons to like the company is its fairly large dividend yield, thanks to its generous dividend payout ratio and relatively low price/earnings (P/E) ratio.
The projection on Commsec suggests the business could pay an annual dividend per share of $2.12, which would translate into a grossed-up dividend yield of 6.8%. There have been times when the payout was bigger, and perhaps that will return in the future.
According to Trading Economics, the iron ore price is currently sitting above US$120 per tonne, which is almost the highest it has been for six months. This gives BHP the ability to make good profit and cash flow, perhaps more than analysts and the market are expecting. This could be a key driver of the BHP share price.
There is plenty of negative commentary surrounding the Chinese economy and what it could mean for the iron ore price. But, as we regularly see in the broader share market, there's always something negative going on and yet prices continue to do better than expected. Sometimes it's a good idea to ignore the 'noise' of bad news that usually fades away.
I think it can pay to be positive about the medium term.
In the longer term, I like BHP's moves to increase its exposure to 'greener' commodities such as copper, nickel, and potash. In a decarbonising world, there's plenty of research that says demand for those commodities may increase. I like that these moves can also decrease the company's reliance on China buying its commodities.
Negatives
It may be tricky for the business to deliver a lot of capital growth from here. According to the ASX, it already has a market capitalisation of $223 billion.
It's increasingly difficult for a miner to keep producing more and more commodities each year. The question is: can BHP keep unlocking more projects?
There is also the question of what the iron ore price will do from here. I don't think it's going to go back to US$200 per tonne as it was in mid-2021. As such, it's important not to anchor our thoughts on the BHP share price back to that time.
This may well be a fair price for the business in the current environment, meaning there may not be much upside in the short-to-medium term, apart from the dividends.
According to Commsec, the BHP share price is valued at close to 12 times FY24's estimated earnings. It's not a bad price but if I were trying to deliver market-beating returns, I'd want to try to buy it at under $40 a share.
