Is the Fortescue Metals Group Limited (ASX:FMG) share price an attractive opportunity. The FY21 dividend yield is very high.
The post Is the Fortescue (ASX:FMG) share price an attractive opportunity? appeared first on The Motley Fool Australia. –
Is the Fortescue Metals Group Limited (ASX: FMG) share price an attractive stock to own?
The broker Ord Minnett certainly thinks so. It has a price target on the iron ore miner of $29, which suggests potential upside of around 40% over the next 12 months.
Ord Minnett believes that the Chinese steel production will continue to remain strong for longer than expected. There’s also the possibility that non-Chinese steel production could make up for any reduction of demand from China.
The broker feels that there’s a good chance that the Fortescue share price could gain investor attention again as the iron ore price remains strong.
However, there are other brokers which don’t have such a positive outlook for the Fortescue share price. Morgan Stanley has a price target of $17.45, which suggests a possible decline of the Fortescue share price of around 15%.
The broker thinks that the iron ore price could drop in the coming months if China’s demand lessens over the rest of the 2021 year. More iron ore supply could also come online, such as Brazil, which has been impacted by COVID-19.
What about the dividend?
Fortescue is well known for its high dividend yield and FY21 is expected to be a really big dividend.
Different brokers have different expectations for the Fortescue dividend.
It might be unsurprising that Ord Minnett’s positive outlook for the Fortescue share price also translates into big expectations for the dividend. Ord Minnett thinks Fortescue could pay a dividend of $3.52 per share for FY21, translating to a grossed-up dividend yield of 24.5%. In FY20, the broker is expecting the miner to pay a dividend of $3.10 per share – this is a grossed-up dividend yield of 22%.
Morgan Stanley is expecting Fortescue to pay a dividend of $2.89 per share in FY21 – that’s a grossed-up dividend yield of 20%. In FY22, the broker is expecting a dividend of $1.56 per share, which is a grossed-up dividend yield of 10.9%.
Fortescue recently changed its capital allocation strategy, whilst retaining its commitment to shareholder returns. It’s targeting the top end of its dividend policy to payout 50% to 80% of full year net profit after tax (NPAT). With 20% of net profit available to fund future growth, Fortescue intends to allocate 10% to fund renewable energy growth through Fortescue Future Industries (FFI) and 10% to fund other resource growth opportunities.
What’s Fortescue Future Industries?
FFI has been created to identify renewable energy and green hydrogen projects both in Australia and globally.
The business intends to “bring its demonstrated capability of adopting innovation and technology to ensure future green energy projects will position Fortescue at the forefront of this emerging industry.”
Fortescue also described the renewable energy and green hydrogen projects as diversification opportunities for the business.
Fortescue hopes that its green energy division can become a substantial size of the business over time.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of February 15th 2021
- Why are the big ASX mining share prices slipping today?
- ASX 200 Weekly Wrap: ASX sees 7,000 points once more
- 2 high yield ASX dividend shares rated as buys
- The new race between US and China is good news for these ASX shares
- 2 great ASX 200 blue chip shares for dividends
Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. 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.