By Jason Fittler,

We see the major diversified miners as the most preferred in the space given their ability to manage margins and cash flow.

BHP, like its competitors, is currently focusing on removing costs from the business, focusing on operating performance, productivity, simplification, expanding margins, and the generation of free cash flow.

BHP is encouraging internal competition for capital to ensure the best return on investments.

BHP plans to focus on its key pillars to increase returns to shareholders, including Iron Ore, Petroleum, Copper and Coal.

We believe BHP's initiatives of reducing costs and CapEx yet retaining growth focus for 2016 are positive for shareholders.

Our price target of A$28.00 is 23% above the current price of $22.70.

BHP intends to continue to pay dividends per share of $1.24 increasing to $1.38 by 2020. This equates to a gross dividend of 8.6% on current prices.

We expect the prices for BHP's key commodities to be subdued over the next few years; with iron ore and copper moving into oversupply, coal already oversupplied, and petroleum suffering from an industry player that is looking to rebalance the market and prompt high-cost players to assume the mantle of swing producer.

Earnings should, however, be supported near term by currency moves (weaker A$, Rand, etc.), volume growth, and further cost cutting.

From a top-down perspective, we are concerned European growth may remain subdued for longer, and that the structural imbalances in China may result in slowing demand and a challenging environment for commodities.

However, we see some evidence that the mining industry is starting to operate in a more disciplined way, which bodes well for the longer-term supply/demand outlook.

BHP is a good long-term buy for investors looking for income and who are comfortable to hold long-term in what I am sure will be a volatile stock.

For more information about BHP please contact us on 07 4771 4577.