Is the BHP share price set to hit a fresh 52-week high?

Posted: 31 March 2022 1:37 pm
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Shares in iron ore miner BHP have rebounded nearly 35% over the last 6 months.

Mining giant BHP (ASX: BHP) is among the better performers on the ASX in the past few months, having rebounded more than a third of its value in the past 6 months. The stock was up another 3% on Thursday to $52.06 and is now within reach of its 52-week high of $54.55 that it touched in August last year.

By comparison, shares of rivals Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) have risen 17% and 32% respectively.

Why the BHP stock price is set to climb further

The previous high in BHP shares last August came on the back of sky-high iron ore prices that touched US$237 a tonne in the first half of 2021. That extended run-up in prices immensely benefited the big miners and was reflected in record profits and dividend payouts.

Prices of the key steel-making ingredient then hit a low of US$87 a tonne in November, but have since rebounded nearly 90% to currently trade at US$150.88 a tonne. They are showing no sign of retreating and could trend higher, some analysts say.

While BHP's dominant iron ore division is responsible for most of its profits, the company is also cashing in on the current broad-based run-up in all commodities prices driven by the supply disruptions that Russia's invasion of Ukraine caused.

BHP is also a key exporter of metallurgical and thermal coal, both of which have hit record highs of US$560 a tonne and US$400 a tonne in recent weeks. This will no doubt reflect in the company's bottom line.

BHP's copper division, which contributes roughly 20–25% of its earnings, is also benefiting from the fact that copper is fetching US$10,341 a tonne on the LME, within touching distance of the record US$10,700 a tonne hit in May last year.

Improved weightage, outlook

At the same time, the BHP stocks fundamentals have turned more attractive for investors.

First, the company's sale of its petroleum business to Woodside (ASX: WPL) last year has allowed it to deliver record payouts for shareholders while also retaining a small stake in the combined entity.

BHP shares currently deliver an enormous dividend yield of more than 8%, thanks to its windfall profits over the last 2 reporting periods.

Meanwhile, the stock is also benefiting from the recent end to its dual-listing in London, which has significantly boosted its weightage on the key ASX indices. The "Big Australian" now accounts for more than 11% of the entire weight of the ASX 200, making it the top stock on the Australian market.

The rapid turnaround in the iron ore price has also led to most analysts revising their outlook on all major mining stocks, including BHP. The market now broadly expects the ore price to stay above US$100 a tonne at least until mid-2023, signalling continued high profits for the Big Three miners.

For example, analysts at Macquarie have retained an "outperform" rating on the BHP stock this week, with a price target of $61 a share, implying a potential upside of more than 15% even from the current peak. They expect a dividend yield of 10% in FY 2022 and 6.9% in FY 2023, which could make the stock even more attractive for investors.

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