UBS Projects BHP's FY26 Dividend at US$1.09, Despite China Tensions
UBS has projected that BHP could deliver an annual dividend of approximately US$1.09 per share for the current financial year (FY26), representing a grossed-up dividend yield of about 5.7% including franking credits. This projection is influenced by iron ore price forecasts, production guidance, operational efficiency, and the resolution of the current China situation.
BHP's dividend projections for FY27 and FY28 suggest a potential dip in payouts, with an annual dividend of approximately US$1.00 per share expected for both years. At current share prices, BHP's grossed-up dividend yield is approximately 5.3-5.6% when including Australian franking credits, making it appealing for income-focused investors.
UBS notes that BHP appears more vulnerable than Vale and Rio Tinto in the current scenario, highlighting BHP's potential exposure compared to key competitors. Tensions between BHP and Chinese iron ore buyers have been growing, with China's state-run iron ore buyer CMRG instructing domestic steel mills to avoid purchasing BHP's iron ore. Disagreements over pricing adjustments related to iron ore price trends and impurities in long-term volume contracts are the root cause of these tensions. However, market analysts suggest that any ban on BHP's iron ore by China would likely be short-term due to the mutual interdependence between BHP and Chinese steel producers.
BHP Group adjusted its dividend payout ratio to 60% for FY25, declaring a final dividend of US$0.60 per share, bringing the total FY25 dividend to US$1.10 per share. This reflects a 55% overall payout ratio, higher than the traditional 50% minimum commitment. Despite current tensions, negotiations between BHP and China from 2025 to 2030 could potentially lead to increased market access, enhanced supply chain stability, and improved trade relations, benefiting BHP's revenue and strategic positioning in the global mining sector.
