Readers hoping to buy BHP Group Limited (ASX:BHP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, BHP Group investors that purchase the stock on or after the 6th of March will not receive the dividend, which will be paid on the 27th of March.

The company's next dividend payment will be US$0.50 per share, and in the last 12 months, the company paid a total of US$1.00 per share. Looking at the last 12 months of distributions, BHP Group has a trailing yield of approximately 4.1% on its current stock price of AU$39.60. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether BHP Group has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for BHP Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. BHP Group paid out 55% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 72% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that BHP Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

ASX:BHP Historic Dividend March 3rd 2025Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at BHP Group, with earnings per share up 6.1% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. BHP Group has seen its dividend decline 1.5% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Should investors buy BHP Group for the upcoming dividend? Earnings per share have been growing modestly and BHP Group paid out a bit over half of its earnings and free cash flow last year. All things considered, we are not particularly enthused about BHP Group from a dividend perspective.

If you want to look further into BHP Group, it's worth knowing the risks this business faces. To help with this, we've discovered 2 warning signs for BHP Group (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.