FTSE 100 mining giant BHP (LSE: BHP) today delivered its operational review for the trading half-year to 31 December 2020. Chief executive Mike Henry said in the report the company achieved a “strong” operational performance in the period. The stock moved higher today in early trading, continuing a strong rebound from the lows of last spring. And with the share price near 2,158p, it’s close to its all-time high of just above 2,200p achieved just under a decade ago.
BHP’s ‘lost’ decade
That situation underlines a pertinent fact. If I’d invested a decade ago near the previous high, I’d only now be near to breaking even on my original invested capital. Of course, there have been dividends along the way to soften the blow a bit. But essentially, the value of my invested capital will have been underwater until now.
I reckon there’s been a huge opportunity cost for those holding BHP for 10 years. Many great stock investments have passed my screen over that time and my money could have been in many of them, working hard for me. Instead, though, it would have been languishing in BHP.
Meanwhile, the dividend record is a little patchy. For example, in 2015 the total dividend was $1.29. In 2016, it was $0.29. City analysts expect the shareholder payment to be around $1.79 this year but to drop to about $1.62 next year. And that level throws up a forward-looking yield of around 5.5%.
The share price has been all over the place too, even dropping as low as about 600p in early 2016. In hindsight, that would have been a good time to load up with the stock to ride the cyclical recovery. But what about now? I’m not so sure.
Commodity prices riding high
It almost goes without saying the trading outcomes for a cyclical mining company like BHP are heavily dependent on the prevailing prices for the commodities it deals with. BHP has operations in things like copper, iron ore, coal, nickel, and oil. And a quick glance reveals prices for all those commodities have been riding high lately.
I reckon robust commodity prices potentially signal a decent general economic recovery brewing. But I’d question whether a miner like BHP is the best way for me to benefit. It’s tricky timing a good entry into out-and-out cyclical stocks. And dividend yields can be an unreliable indicator. For example, the UK-listed banks had high-looking yields for years – and then they crashed.
However, Henry reckons BHP is “well-positioned to sustainably grow shareholder and social value as the global economy recovers from the pandemic”. But for me, there are stocks with high dividend yields and the potential for capital growth elsewhere. And rather than being a no-brainer, I’d put cyclical shares like BHP on the ‘too tricky’ pile.
Instead, I like the consistent cash-generating and dividend-paying qualities of companies such as GlaxoSmithKline, National Grid, and Tate & Lyle right now. So, I’ll stick with those for the time being.
