Here’s 1 of the best stocks to buy for passive income

Jabran Khan delves deeper into one of the best stocks to buy for passive income, which is a FTSE 100 mining business.

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Could mining giant BHP Group (LSE:BHP) be one of the best stocks to buy for passive income? I believe so. Here’s why.

FTSE 100 mining business

BHP is one of the world’s largest mining businesses. The Australian-based firm mines and sells a plethora of commodities such as iron ore, coal, copper, and uranium. With operations in around 90 countries and supported by 80,000 employees, it has a global profile and presence.

So what’s happening with BHP shares right now? Well, as I write, they’re trading for 2,186p. At this time last year, the stock was trading for 1,901p, which is a 14% increase over a 12-month period.

The best stocks to buy have risks too

Although commodities prices are currently higher than usual due to macroeconomic headwinds, they are often volatile. This volatility can affect performance as well shareholder returns. An example of volatility has been BHP’s demand for iron ore from China. Is this unusually high demand sustainable or will it subside?

Next, although I like BHP shares to pay dividends and boost my passive income stream, dividends are not guaranteed. They can be cancelled at the discretion of the business at any time. In fact, BHP did cancel dividend payments recently, namely in 2016 and 2020.

It is worth noting that the rising cost of materials as well as the supply chain crisis could also have a negative impact on operations and performance. This is something I will keep an eye on.

The bull case

So to the positives. Continuing to talk of dividend payments, BHP shares currently have a dividend yield of over 12%. This is close to four times the FTSE 100 average of 3%-4%. Not many of my best stocks to buy can attest to such an enticing yield.

It is worth remembering dividends are underpinned by performance. I do understand that BHP’s past performance is not necessarily a guarantee of its future performance, however. Looking back, it has consistently recorded revenues of over $42bn for the past four years. In addition to this, I noted that its 2021 performance surpassed pre-pandemic levels by some distance, hitting $56bn of revenue.

Next, at current levels, BHP shares look good value for money too on a price-to-earnings ratio of just 10. The general consensus is that a P/E ratio of below 15 on the FTSE 100 represents value for money on the surface of things.

Finally, as one of the biggest mining businesses in the world, BHP’s performance, returns, and growth prospects are underpinned by its vast reach and profile. The old adage too big to fail springs to mind for me here.

Overall, I would add BHP shares to my holdings. I believe they would boost my passive income stream nicely as well as continue to provide consistent returns in the long term. As a dividend seeker, I truly believe it is one of the best stocks I can buy.

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 considered so you should consider taking independent financial advice.

Jabran Khan 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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