In the ever-evolving landscape of investments, BHP Group Ltd (ASX: BHP) has emerged as a beacon for passive income enthusiasts. Beyond the allure of potential capital gains, BHP shares have gained substantial recognition for their consistent and fully franked dividend payouts, making them a preferred choice among investors eyeing reliable returns.

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The Golden Year of 2021

The meteoric rise of iron ore prices in mid-2021, soaring above US$215 per tonne, mirrored the surge in passive income for BHP shareholders. The pinnacle was reached with the final 2021 dividend of an unprecedented $2.715 per share, establishing a new all-time high that remains unchallenged to this day.

2022: A Year of Records

Building on the momentum, BHP shares set another record in 2022, presenting investors with a remarkable interim dividend of $2.081, followed by a final dividend of $2.552 per share. Although slightly trailing behind the zenith of 2021, it solidified BHP's reputation for consistent and lucrative dividend payments.

Navigating the Challenges of 2022 and 2023

The first half of 2022 witnessed iron ore prices fluctuating between US$130 and US$150 per tonne. However, a stark reversal occurred towards the end of the year, plunging to approximately US$85 per tonne by October 2022 due to diminished demand from China.


As 2023 unfolded, iron ore prices hit lows of just under US$100 per tonne in late May. BHP responded with an interim dividend of $1.364 per share in March and a final dividend of $1.251 in September, maintaining a fully franked yield of 5.6%. The impact of lower iron ore prices on dividends was evident, yet the stock continued to offer an attractive return.

What Awaits in 2024?

The Current Landscape

As of Tuesday afternoon, iron ore is trading at US$136 per tonne. According to Andrew Fraser, co-portfolio manager at Merlon Capital, this presents positive tidings for BHP shareholders anticipating further passive income.

Insights from the Experts

Fraser underscores the significance of the iron ore pricing environment, asserting its substantial contribution to cash flows compared to other commodities like nickel or copper. He suggests that both BHP and Fortescue have robust grounds to maintain their dividends, especially in light of the recent surge in iron ore prices.

A Glimpse into Citi's Forecast

Analysts at Citi project a bullish future for iron ore prices, foreseeing a surge back to US$150 per tonne in the first quarter of 2024. This optimism is grounded in the increasing stimulus measures from the Chinese government and the People's Bank of China, designed to revitalize the nation's economy and property markets.


Wenyu Yao, a Citi analyst, views these measures as positive, anticipating a continued risk rally with urban village redevelopment and strong total social financing figures contributing to the momentum. The implication for BHP shares is significant, with potential tailwinds continuing into the second quarter.

Possibilities for 2024 Dividends

As we gaze into 2024, the stage is set for a potential boost in BHP's dividends. If iron ore prices continue their upward trajectory, reaching levels not witnessed since the first half of 2022, shareholders could be in for a windfall. Citi's forecast aligns with this anticipation, suggesting that policy momentum in China could gather speed, providing additional upside catalysts in the second quarter.

Conclusion

In conclusion, BHP shares stand as an appealing choice for passive income investors, blending the prospects of capital gains with a history of reliable dividends. The journey from the record-breaking dividends of 2021 through the challenges of 2022 and 2023 leads us to an intriguing juncture in 2024, where favorable iron ore prices and expert forecasts paint a promising picture for shareholders.