The Fortescue Metals Group Limited (ASX:FMG) share price was out of form and sank notably lower in March. Here’s what you need to know…
The post Here’s why the Fortescue (ASX:FMG) share price sank 17% in March appeared first on The Motley Fool Australia. –
The Fortescue Metals Group Limited (ASX: FMG) share price was uncharacteristically out of form in March.
During the month, the iron ore producer’s shares fell a disappointing 17%.
This compares to a gain of 1.8% by the the S&P/ASX 200 Index (ASX: XJO).
Why did the Fortescue share price underperform in March?
There were a couple of reasons for the underperformance of the Fortescue share price last month.
The first was the company’s shares trading ex-dividend on the very first day of the month for its huge interim dividend.
When a company’s shares go ex-dividend, they tend to drop by the amount of the upcoming dividend. This is to reflect the fact that the rights to the dividend remain with the seller and aren’t transferred to the buyer.
In the case of Fortescue, it was paying shareholders a massive $1.47 per share dividend. This is the equivalent of a 6.1% yield, which accounts for over a third of the Fortescue share price decline.
What else was weighing on the company’s shares?
However, having the biggest impact on the Fortescue share price last month was the iron ore price.
The price of the base metal came under pressure in March after Chinese authorities decided to restrict the output for some steel mills in Tangshan until the end of 2021. Regulators made the move in an attempt to combat rising pollution levels.
This led to analysts at Goldman Sachs predicting that the steel making ingredient would end up in a surplus in 2022 instead of a deficit.
According to Metal Bulletin, this news led to the benchmark 62% fines iron ore price losing ~US$10 a tonne or over 6% during the month to end it at US$165.15 a tonne.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.