Could the Fortescue Metals Group Ltd (ASX:FMG) share price be a buy for its dividend? Its trailing yield is 10.5%, grossed-up.
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Could the Fortescue Metals Group Ltd (ASX: FMG) share price be worth buying for its dividend right now?
What is Fortescue Metals Group?
Fortescue describes itself as one of the global leaders in the iron ore industry with its mining assets in Pilbara, Western Australia. The company was only founded in 2003 by Andrew Forrest.
It has fully integrated operations in the Pilbara including the Chichester and Solomon mining hubs and it’s developing the Western Hub, home to the new Eliwana mine. The Iron Bridge Magnetite Project, which it says is an industry-leader in cost and energy efficiency, will be one of the highest-grade magnetite projects in the world according to Fortescue.
Whilst its main focus is iron ore, it is undertaking exploration activities in New South Wales and South Australia, as well as in Ecuador and Argentina, and preliminary exploration activities on tenements that are in application in Colombia, Peru, Portugal and Kazakhstan, prospective for copper, gold and lithium.
It was also recently announced that Fortescue is exploring ‘green hydrogen’ and the possibility and making steel with iron and hydrogen instead of coal.
What’s going on with the dividend right now?
We’ll soon find out what Fortescue plans to do with its FY21 half-year dividend because the result is scheduled to be released on 18 February 2021.
Based on the trailing twelve months of dividends, Fortescue has a grossed-up dividend yield of 10.5%.
However, there are some financial analysts that think that the dividend could be about to get a lot bigger. For example, the brokers at Macquarie Group Ltd (ASX: MQG) think that in FY21 Fortescue could pay a dividend of $2.04 per share, with a dividend of $1.36 per share in FY22. That would translate to a FY21 grossed-up dividend yield of 12.2%.
There are others with even bigger dividend expectations. Using numbers on Commsec, Fortescue has an estimated grossed-up FY21 dividend yield of 18.4%. Broker UBS has forecast Fortescue could pay a whopping $3.69 per share dividend in FY21, which would translate to a grossed-up dividend yield of 22%.
Fortescue recently announced that it has generated US$940 million of net profit after tax for the month of December 2020. The miner also said that its preliminary net profit after tax for the six months ended 31 December 2020 is in the range of US$4 billion to US$4.1 billion despite COVID-19.
Is the Fortescue share price a buy?
Broker Macquarie does think that Fortescue shares are a buy and it has a price target of $26.50 on the iron ore miner with strong iron ore prices supporting earnings.
However, broker Morgan Stanley is one of the most bearish on the miner. The FY21 second quarter production and shipments were behind Morgan Stanley’s forecast. The broker thought that shipments for FY21 would be 184Mt, however Fortescue’s guidance is for iron ore shipments to be between 175Mt to 180Mt. It has a price target on Fortescue of $17.45
Fortescue has also provided guidance of C1 costs of between US$13 per wet metric tonne (wmt) to US$13.50 per wmt. Capital expenditure is expected to be between US$3 billion to US$3.4 billion.
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Motley Fool contributor Tristan Harrison 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.