Portfolio diversification might sometimes require that you invest in seemingly “boring” stocks that most likely won’t double your capital within the next few years. But these stocks make up for it with their dividend payouts. They also become undervalued from time to time, offering value investors opportunities to get in. BHP Group Limited (NYSE: BHP) is an example of such stock.
BHP Group deals in the production of natural materials needed to drive global economic growth. Some of its products include copper, iron ore, nickel, and metallurgical coal. Founded in 1851, the Australia-based company has spread its business wings to all continents, excluding Africa.
Shareholders of BHP can always look at the company’s payout ratio of almost 70% and a dividend yield of 10.78% and plaster a smile on their faces. The companies also raked in $37.4 billion in the full year that ended in June 2021 with net debt reducing by 66% to $4 billion.
BHP has made most of its wealth in FY21 from the manufacture of iron ore, the price of which has dropped. This would be a sign to dump BHP if the company depended on this commodity alone. However, the company boasts of other materials that can keep it afloat. It also plans to expand into potash production, a material that is very useful in the agricultural sector.
With a price-to-earnings ratio of 12.54, we believe BHP is undervalued, making it a good value stock. Its reasonably high dividend yield also passes it as a dividend stock worth keeping.
Although BHP has fallen by slightly over 30% from its year-to-date peak, we don’t think it’s out of the woods yet.
The reason for this is that it has fallen below the $56 – $58 support level and now retests it as a resistance level. Usually, what happens from here is that the stock falls even further to the $43 – $46 support level, where it would make a better buy than where it is at the moment. And this is the most probable scenario.
However, if it resurfaces above the support level, that might give us something new to think about. Then, we would have to figure out if a bullish run is beginning, or it was merely a fakeout.