The Fortescue Metals Group Limited (ASX: FMG) dividend was among the most generous on the Australian share market in FY…
The post Is the Fortescue (ASX:FMG) dividend yield really 25%? appeared first on The Motley Fool Australia. –
The Fortescue Metals Group Limited (ASX: FMG) dividend was among the most generous on the Australian share market in FY 2021.
Thanks to sky high iron ore prices, the mining giant was generating significant free cash flow and returned the majority of it to shareholders.
So much so, if you were to look on financial websites such as Google Finance, you will see that the Fortescue dividend yield shows up as 25%.
To put that into context, this means that a $10,000 investment would give you a $2,500 dividend.
Is the Fortescue dividend yield really 25%?
The answer to this question depends upon what you class as the Fortescue dividend.
For example, in FY 2021 Fortescue paid out fully franked dividends totalling $3.58 per share. Based on the current Fortescue share price of $14.23, that indeed equates to a 25% dividend yield.
However, that is on a trailing twelve months (ttm) basis. This dividend has been and gone, so has become largely irrelevant.
What’s the real yield?
The dividend of most significance is the one the miner pays over the 12 months.
And as you might have guessed from the very sharp and recent pullback in the Fortescue share price (and iron ore price), that dividend is not expected to be anywhere near as large as the one paid in FY 2021.
For example, a note out of Goldman Sachs this week reveals that its analysts are expecting a fully franked US$1.02 per share dividend from the mining giant in FY 2022. After which, the broker has forecast a dividend of just 61 US cents per share in FY 2023.
Based on the current Fortescue share price and exchange rates, this will mean yields of 9.7% and 5.8%, respectively, over the next two financial years. While these are still great yields in a low interest rate environment, anyone buying shares recently hoping to receive a 25% yield will be thoroughly disappointed.
So, to circle back to the original question, is the Fortescue dividend yield really 25%? The answer is, sadly no.
Should you invest $1,000 in Fortescue right now?
Before you consider Fortescue, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Fortescue wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
*Returns as of August 16th 2021
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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.