The BHP Group Ltd (ASX: BHP) share price has delivered capital growth of around 30% over the past five years and many big dividends. With BHP shares down around 12.5% since the end of January 2023, it’s a good time to consider whether the ASX mining share is worth buying.
As the largest business on the ASX with a market capitalisation of $223 billion, it’s going to be difficult to deliver market-beating capital growth because of how much growth that would require in dollar terms. For BHP to grow by 10%, we’re talking about $22 billion. That’s close to double the Mineral Resources Ltd (ASX: MIN) market capitalisation, which is already among the biggest miners on the ASX.
Will earnings and dividends grow?
A key part of the growth equation for the BHP share price is whether it can grow earnings.
Analysts certainly don’t seem to think that’s feasible. The ASX mining share is currently expected to generate earnings per share (EPS) of $4.29 in FY23, $4.24 in FY24, and $3.82 in FY25, according to the numbers on Commsec.
Profit declines are not going to excite investors so with the current forecast, I don’t see BHP shares making an investor wealthy from here with capital growth. However, there may well be two reasons why the BHP share price could rise, which I’ll get to in a moment.
The dividend payments may be good enough to please some investors.
Due to the miner’s low price/earnings (p/e) ratio, the dividend yield could be attractive.
According to Commsec, BHP could pay an annual dividend per share of $2.81 in FY23, $2.44 in FY24, and $2.46 in FY25. This would represent grossed-up dividend yields of 9.3% in FY23, 8.1% in FY24, and 8.1% in FY25.
Those are pretty good dividends, but I wouldn’t invest in BHP shares just for the dividends. Still, I believe there are a couple of reasons why things could go better than expected.
Optimistic case
The first part of a bullish case for BHP revolves around iron ore. Iron ore earnings have been key to the business over the last few years, but analysts are expecting the iron ore price to be lower over the next couple of years.
However, it wasn’t expected that the iron ore price would be above US$110 per tonne right now — yet it is. This is enabling BHP’s monthly profit to be stronger than previously expected. Chinese domestic steel demand may not be that strong right now, but stronger steel exports to other countries are picking up some of the slack, which is helpful for the iron ore price.
The other main reason that BHP could deliver for shareholders is the company’s increasing exposure to decarbonising commodities like copper, nickel, and potash. While their production is not at the same scale as iron ore, the diversification of earnings — with less volatility — could be a real positive for the business.
Foolish takeaway
With BHP share still trading comfortably above $40, I wouldn’t call it a clear market-beating opportunity yet. But, I think its FY24 and FY25 earnings could do better than analysts are expecting. I will also say that I would rather own BHP shares for the long term than most ASX bank shares.
