Will Fortescue (ASX:FMG) shares really pay an 18% dividend yield in FY21?

By some projections, Fortescue Metals Group Limited (ASX:FMG) shares could pay an 18% dividend yield in FY21. Is that possible?
The post Will Fortescue (ASX:FMG) shares really pay an 18% dividend yield in FY21? appeared first on The Motley Fool Australia. –

mining dividend shares

At the current share price, Fortescue Metals Group Limited (ASX: FMG) is projected by some analysts to pay a grossed-up dividend yield of 18% in FY21.

The large iron mining business just reported its FY21 half-year result which included a dividend of $1.47 per share. That dividend alone amounts to a grossed-up yield of 8.4% from Fortescue. But there are analysts out there that think there could be another big dividend with the annual report in six months.

But before we get to that, let’s look at what Fortescue just reported.

Fortescue’s half-year result

In the six months to 31 December 2020, Fortescue sold 90.2 Mt of iron ore, which was 3% higher than the prior corresponding period. The realised price of that ore jumped 42% to US$114 per dry metric tonne (dmt).

The higher iron ore price and increased volume sold led to Fortescue’s revenue rising by 44% to US$9.3 billion.

With the benefit of higher prices and a continued focus on cost management through productivity and innovation, Fortescue was able to increase its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) margin by six percentage points to 71%. This helped underlying EBTIDA rise by 57% to US$6.6 billion.

Net profit after tax (NPAT) rose by 66% to US$4.08 billion. Looking at earnings per share (EPS) in Australian dollar terms, it rose by 58% to $1.84.

Operating cashflow grew by 42% to US$4.4 billion and free cashflow rose 12% to US$2.5 billion.

Fortescue’s net debt is down to just US$110 million, down from US$258 million at 30 June 2020. The gross debt still stands at US$4.1 billion and the cash balance is US$4 billion.

Whilst the $1.47 dividend per share declared by the board represented a payout ratio of 80% of net profit, it also said what it’s going to do with the other 20%.

It has established Fortescue Future Industries (FFI) to identify projects in the renewable energy and green hydrogen sectors. Projects have been identified in both Australia and globally.

Fortescue said it’s going to leverage its successful track record of identifying, assessing, and developing large-scale resource and infrastructure opportunities. The company said it will 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.

The company will allocate 10% of its net profit to fund renewable energy growth with FFI. The other 10% will fund other resource growth opportunities.

Is that huge dividend yield possible?

It depends which projections you look at. Commsec has estimated that Fortescue can generate EPS of $3.61 per share in FY21, and that it will pay an annual dividend per share of $3.10. That would equate to the grossed-up dividend yield of almost 18%.

Broker Morgans has previously estimated that Fortescue could pay an even bigger dividend, of around $3.31 per share, with EPS of $4.14 for FY21.

But broker Macquarie Group Ltd (ASX: MQG) doesn’t think that the Fortescue dividend will be as big as the above estimates, with a projected FY21 dividend per share of $2.04. That’d be a grossed-up dividend yield of 11.7%, which is still materially above 10%.

These Dividend Stocks Could Be Your Next Cash Kings (FREE REPORT)

Motley Fool Australia’s Dividend experts recently released a brand-new FREE report revealing 3 dividend stocks with JUICY franked dividends that could keep paying you meaty dividends for years to come.

Our team of investors think these 3 dividend stocks should be a ‘must consider’ for any savvy dividend investor. But more importantly, could potentially make Australian investors a heap of passive income.

Don’t miss out! Simply click the link below to grab your free copy and discover these 3 high conviction stocks now.

Click Here For Your Free Stock Report

Returns As of 15th February 2021

More reading

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Will Fortescue (ASX:FMG) shares really pay an 18% dividend yield in FY21? appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!