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This FTSE 100 stock offers a dividend yield of 10%! Should I buy shares?

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The consensus FTSE 100 dividend yield is 3%. Mining giant BHP Group (LSE:BHP) has a dividend yield of 10%. With that in mind, should I buy shares for my portfolio to help make me a passive income?

FTSE 100 giant

BHP is one of the largest mining firms in the world. With a rich history stretching back to 1885, the Melbourne-headquartered firm produces and sells various commodities. These include iron ore, coal, copper, and uranium. It has a truly worldwide reach, operating in 90 countries with approximately 80,000 employees and contractors on its books.

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As I write, BHP shares are trading for 2,101p per share. This time last year, shares were trading for 1,719p per share. In the past 12 months, its share price has increased by 22%. More importantly, current levels are actually down in recent weeks. The BHP share price is down 12% compared to mid-August when they were trading for 2,358p per share.

I believe the BHP share price fall has been due to a few factors in BHP’s final results, which were announced last month. Firstly, it announced a major restructure which would see it sell its oil division in a merger with Woodside Petroleum and refocus elsewhere. This will mean short-term pain in terms of lost revenue but it could mean long-term profits as it focuses on other areas such as iron ore. It also decided to remove its dual listing on the London and Sydney stock exchanges.

FY performance

BHP’s share price dipped as a result of these announcements but I personally don’t think it’s a bad thing. I believe BHP will be a leaner, more efficient business. Furthermore, I believe at its new price it is a good FTSE 100 opportunity to pick up cheap shares.

BHP’s full-year results were impressive. The rising demand for iron ore (especially in China), coupled with disruption in supply, benefitted BHP. Revenue grew by 80% to $25.9bn compared to the previous year. In turn, profits increased by 42% and the balance sheet received an infusion of cash.

This cash injection meant BHP was able to reduce debt and announced a $2 dividend payout. The full-year dividend payout reached $3 which is a new record for BHP. Some of my best FTSE 100 picks pay out good dividends and these are good additions to my portfolio as they help me make a passive income.

Risk and reward

I don’t believe BHP’s recent impressive results are sustainable. BHP benefitted from rising iron ore demand and prices, especially in China. China has recently introduced government-mandated reduction targets. This will affect BHP in my opinion. With the recent shift away from its oil business, its reliance on iron ore will be heavier and if the current growth rate cannot be maintained, profit will be affected.

Next, the dividend yield is above the FTSE 100 consensus, but they are not guaranteed. BHP does have a history of cancelling its dividend, namely in 2016 and 2020. If this were to occur once more, I would not make a passive income from shares I bought.

Overall, I do like BHP Group and think it is a good option for my portfolio. With its recent share price dip, I think there is an opportunity to pick up cheap shares and I would be happy to add some to my portfolio.

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Jabran Khan 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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