BHP Group is arguably the most well-diversified mining and exploration company there is. It is a part of every investor’s portfolio for different reasons – maybe for the stable dividends, or to decrease the overall volatility of the portfolio. BHP shares are also one of the best blue-chip stocks that trade on the ASX.
However, the BHP share price has come under significant pressure this month. On Friday, in the early trade, the mining giant’s shares went down by more than 1.7% to $37.72 per share. This means that BHP’s shares are now down by 17% since last month. What happened? One of the causes is further weakness in the iron ore price after curtailed steel production in China hit demand for the base metal. Not only BHP experienced such a pullback, but other mining giants went also through the same ride.
Why is BHP Stock Going Down on the ASX?
China, which is the world’s second-largest economy is aiming to cut steel output growth this year to 2020 levels. Although, after expanding around 12% in the first half of this year, the country is now reducing its steel output by 12.2% from August to December to reach its goal. However, we remain optimistic about the rebound of iron ore prices driven by a return in demand by the end of the first quarter of 2022.
The falling BHP shares were keeping the Australian market lower while investors could not shirk concerns about the troubled property giant Evergrande. The ASX has bucked a good lead from the US as investors look for confirmation that Evergrande paid a $US83.5 million interest payment on Thursday. Evergrande pledged it would. Although some investors say they are yet to see the evidence. The Chinese giant is struggling to pay about $418 billion in debts and investors fear a collapse could reverberate around the world.
Despite the recent event, BHP remains a solid play, especially for its lucrative dividend of US$ 3.01 per share representing a solid payout ratio of 89%. The record dividend was the result of operational excellence throughout the year. BHP exhibited solid performance that led to consistent free cash flow generation and an efficient margin of 64%.
Looking forward, BHP is also streamlining its business. Hence, we have seen Woodside Petroleum and BHP announcing their intention to enter a merger commitment to combine their respective oil and gas portfolios by an all-stock merger to create a global top ten independent energy company. This move from BHP will pave the way for the resource giant to move into the Potash business and further focus on developing a net-zero company.