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.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Black woman using loudspeaker to be heard

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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 assessed. 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.

More on Investing Articles

Investing Articles

Here’s the latest growth and share price forecasts for Nvidia stock

Nvidia is due to report Q4 results towards the end of February. Should I buy the stock in anticipation of…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Is the party over for the S&P 500 as Trump’s tariffs loom?

Donald Trump's planned tariffs have cast doubts on the future performance of the S&P 500. What should investors do now?

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett continues to invest in this well-known pizza company

Warren Buffett just bought another 1.1m shares in Domino’s Pizza. Should investors follow him into the well-known fast food company…

Read more »

Investing Articles

A £100 weekly income from a Stocks and Shares ISA? It’s possible!

Mark Hartley details how a combination of good stock picks and patience could transform a Stocks and Shares ISA into…

Read more »

Young black colleagues high-fiving each other at work
US Stock

Why Apple stock could be set to soar with the new Alibaba partnership

Jon Smith explains why a new deal relating to the Chinese market could be good news for Apple stock, not…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

This FTSE stock tanked 58% last week. But there could be some good news!

Shares in John Wood Group plunged after the FTSE engineering stock released a trading update. But our writer thinks there…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£1,000 invested in Tesla shares 2 months ago is now worth…

Tesla shares have soared over the last decade. However, since 17 December 2024, they have lost more than a quarter…

Read more »

US Stock

Could Trump’s tariffs cause a stock market crash?

Jon Smith looks at the recent whipsaw movements in the markets relating to US trade policy and talks through stock…

Read more »