BHP issues record FY22 dividend as surging coal profits offset weaker iron ore prices

BHP (ASX: BHP) posted a sizeable profit beat and issued a record full year dividend contrary to all the economic doom and gloom.

“BHP delivered strong operational performance and disciplined cost control to realise record underlying earnings (EBITDA) of US$40.6 billion and record free cash flow of US$24.3 billion," said BHP CEO Mike Henry.

Results at a glance

Source: BHP | Table: Market Index

Record profits, even better margins

BHP's US$30.9bn profit figure was well ahead of consensus expectations of US$22.56bn. There were several factors that helped the iron ore major deliver the solid beat:

• Record margins of 65% compared to 64% in FY21

• Copper EBITDA in-tact at US$8.6bn compared to US$8.5bn in FY21

• Metallurgical coal EBITDA jumped to US$7.7bn compared to US$593m a year ago

Solid margins and surging coal profits helped offset weaker average iron ore prices, which came in at US$113.1 a tonne in FY22 compared to US$130.56 in FY21.

Source: BHP

Record dividend

BHP will pay a final dividend of US$1.75 per share, which includes an additional 60 US cents per share above the 50% minimum payout policy.

While full-year dividends climbed to a record US$3.25, the final dividend was -12.5% lower compared to the prior period.

BHP shares will go ex-dividend on Thursday, 1 September.

Iron ore outlook

"Looking ahead, the key near-term uncertainties are the pace of steel end-use sector recovery in China, how the Chinese authorities will administer steel production cuts in the remainder of the 2022, and the performance of seaborne supply," BHP said in a statement.

"In the medium term, China’s demand for iron ore is expected to be lower than it is today as crude steel production plateaus."

Economic outlook

BHP expects a volatile near-term operating environment as economic growth slows, uncontrollable costs like fuel remain elevated and central banks continue to aggressively hike interest rates.

"The net result of these many challenges is that the marginal cost of production is now estimated to be markedly higher than it was prior to the COVID-19 pandemic. This implies that price support is also expected to be higher than in previous cycles and low-cost operators stand to capture higher relative margins in certain commodities," said BHP.

Green pivot

BHP said its Jansen Potash Stage 1 project is tracking to plan and hopes to bring forward first production into 2026, while assessing options to accelerate Jansen Stage 2.

Once operational, the project will be the world's largest potash producing mine, with an anticipated initial capacity of 4.3 to 4.5m tonnes per annum.

"In exploration, we continue to advance copper targets in a number of countries as well as our nickel exploration programs in Canada and Australia," noted BHP.

FY23 guidance

BHP provided the following production guidance for FY23:

• Iron ore: 249-260m tonnes, -2% to 3% compared to FY22

• Copper: 1.365-1.825m tonnes, up 4-16%

• Metallurgical coal: 29-32m tonnes, up 0-10%

BHP share price chart