Did China just boost the 2024 dividend outlook for BHP shares?
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The stocks of BHP Group Ltd (ASX: BHP) have reached an all-time high by providing a notable interim dividend of $2.08 per share in the year 2022. The dividend is fully franked, which means that the company has already paid the necessary tax on the distributed dividends.
The final dividend for 2022 amounted to $2.55 per share, which was slightly lower than the previous year's record-breaking payout of $2.72 per share.
As the cost of commodities decreases, the mining behemoth listed on S&P/ASX 200 Index (ASX: XJO) has reduced its 2023 interim dividend payout to $1.36 per share.
That's still decent.
At the end of Friday's trading, BHP's shares were valued at $46.42 each. This means that there's a historical yield of 8.4%, plus some tax advantages to consider. Nevertheless, it's still lower than the 11% plus yields that investors were able to take advantage of with this stock last year.
Here's the reason why China might have recently increased the forecasted return for the major mining company in 2024.
You probably already know that dividends are strongly connected to a business's income and earnings.
The primary source of income for BHP shares is iron ore, with copper coming in second as a significant earner for the ASX 200 mining company.
Throughout most of this year, the prices of industrial metals have been decreasing rapidly due to slow economic growth worldwide.
China, being a country that requires a lot of resources, has been encountering a sluggish recovery since the pandemic restrictions were lifted, and its real estate industry is not faring well.
By 31 May, the cost of iron ore decreased to $100 per tonne whereas copper had a value of $8,089 per tonne on the same day.
However, both types of metals have experienced a sudden resurgence in June. This could be due to potential whispers about upcoming stimuli from the Chinese government, which are now gradually becoming a reality.
Iron ore has risen by 0.8% in value overnight, now sitting at US$113.30 per tonne. This marks a 13% increase for the month of June. Additionally, the price of copper has skyrocketed by 6% in the same timeframe.
As a result, the BHP stocks have seen a rise of 10% since the market closed on June 1, which can be attributed to this occurrence.
Experts' Views On China's Stimulus Measures?
The unexpected event that took place on Wednesday and then again yesterday was the reduction of short-term loan rates by the People's Bank of China (PBoC).
However, it is improbable that the conclusion of government stimulus has been reached. Analysts suggest that there are probable further actions that will be declared to assist the revival of household spending and the floundering construction sector.
This development could potentially be advantageous for the value of BHP stocks.
As per the statement given by Chen Xi, who is a fixed-income analyst at Kaiyuan Securities (as stated in The Australian Financial Review):
It's very likely that some additional actions, like relaxed loan policies and financial flexibility, will be implemented, and this can all positively impact the economy.
Julian Evans-Pritchard, a China economist at Capital Economics, suggested that the upcoming second quarter may not perform as well as expected and may require additional aid to avoid a resumed economic slump.
As the Chinese economy continues to expand at a faster pace, there will be an increasing need for copper and iron ore to support this growth.
As a result, this would provide some advantages for BHP's stocks as we approach 2024 and improve the prospects for dividends for the mining company.
Advising investors to prioritize dividends over stimulus, Romano Sala Tenna, one of the co-founders of Katana Asset Management, warned against putting the proverbial cart before the horse according to the AFR.
There is a belief that China has opened up its resources once more. The previous instances of this occurring were beneficial for obtaining resources, however, the benefits have gradually decreased with each occasion.
Sala Tenna believes that the dividends received from owning BHP shares will be influenced more by the overall attitude of Chinese consumers and companies, as opposed to any efforts made to boost the economy.
According to him, the impact on the outlook would be more significant than on the actual basis. The influence would be favorable, but it wouldn't resemble the effects of previous boosting phases.
