These 2 FTSE 100 stocks could give you dividend income and growth for decades to come

Harvey Jones says these FTSE 100 (INDEXFTSE:UKX) giants offer high dividend yields at low valuations.

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The BHP Group (LSE: BLT) share price has been rattling along, up 26% in the last six months, as it benefited from the surprisingly optimistic start to the year by global economies and investors.

Metal machine

Today, the mining giant issued its operational review for the 12 months to 30 June with all major projects tracking to plan, with the exception of one or two minor setbacks.

Underlying improvements in productivity were dented by unplanned production outages of $835m during the first half, notably flooding in its Queensland metallurgical coal operations and changes to its Nickel West mine plan.

Higher costs in thermal coal and declining copper production also hit the FTSE 100 group, which forecast $1bn in productivity losses in 2019 due to these disruptions.

None of which has worried investors as the share price has risen slightly today, with BHP reporting it has exceeded full-year production guidance for petroleum. Iron ore output recovered in the fourth quarter after a cyclone knocked production in March, and it could grow by up to 6% next year.

Swings and roundabouts

The £108bn group is the world’s largest mining company and for that fact alone probably merits a place in most well-diversified portfolios. As with any commodity stock, the group’s share price tends to be volatile on a day-to-day basis, cyclical in the medium term, but rewarding in the longer run, which is what you should be looking at.

The stock did slip earlier this year when it reported a drop in production and earnings. But demand for metals, such as copper and iron ore, remains high and management’s biggest challenge is actually finding enough to meet demand.

BHP stock has doubled your money in just three years yet still trades at just 13.1 times forecast earnings, which are expected to grow a healthy 18% this year and 20% next. The forecast yield is now 8.6% for 2019, and 6.7% for 2020. It looks a buy to me.

Rio Grande

Commodity stocks have a habit of rising and falling in line with each other as macro fundamentals drive share price performance rather than micro differences. So fellow FTSE 100 commodity giant Rio Tinto (LSE: RIO) is also up 25% this year. It’s also up 95% over three years, again, rising in lockstep with BHP Group.

On the other hand, individual company problems can weigh. For example, costs on Rio Tinto’s Oyu Tolgoi underground copper mine in Mongolia have spiralled from an estimated $5.3bn to potentially $7.2bn, with the project now delayed for up to 30 months.

China on my mind

Roland Head believes the Rio Tinto share price may have peaked as post-tax profits hit a record £13.6bn last year. But analysts now forecast slippage to $10.5bn for 2019, then $9.1bn the year after. This may be reflected in the £61bn group’s lower valuation of just 8.9 times forecast earnings, which buys you a yield of a whopping 7.3%.

With both stocks, the big worry is that the Chinese economy will slow further and demand will fall. However, analysts have been warning of this danger for years, and it hasn’t happened yet. If I was only going to buy one FTSE 100 mining giant today, it would be BHP Group. Although in the long run, I’d be looking to buy both.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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