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HY21: Is the Fortescue (ASX:FMG) share price a buy with a BIG dividend?

The Fortescue Metals Group Limited (ASX: FMG) share price is up after the miner produced a strong HY21 result and announced a very big dividend.

Fortescue’s huge HY21 growth

The big iron ore miner reported that its revenue increased by 44% to US$9.3 billion.

Fortescue announced that its FY21 half-year EBITDA (EBITDA explained) grew by 57% to US$6.6 billion. The EBITDA margin improved to 71%, up from 65% a year ago.

The miner’s net profit after tax (NPAT) grew by 66% to $4.08 billion. Fortescue’s profit / earnings per share (EPS) rose by 66% to US$1.33. In Australian dollar terms, the EPS rose 58% to AU$1.84.

The net cashflow from operations grew 42% to US$4.4 billion and free cashflow went up by 12% to US$2.52 billion.

Fortescue was also pleased to inform investors that first ore was achieved at the Eliwana mine in December 2020, which was the first mining operation in the western hub region of the Pilbara.

Fortescue dividend and balance sheet

Thanks to the huge growth of profit, the Fortescue board decided to increase the interim dividend by 93% to AU$1.47 per share. Fortescue has a commitment to shareholder returns, targeting the top end of its dividend policy to payout 80% of full year net profit.

The remaining 20% of net profit will be used to fund future growth. Fortescue intends to allocate 10% to fund renewable energy growth with Fortescue Future Industries and 10% to fund other resource growth opportunities.

The strength of the cashflow allowed the business to reduce its total debt by 20% to US$4.08 billion and net debt reduced by 57% to US$110 million.

Fortescue Future Industries (FFI)

FFI has been established to explore renewable energy and green hydrogen projects both in Australia and globally.

Fortescue will use its demonstrated capability of adopting innovation and technology to ensure future green energy projects will position Fortescue at the forefront of this emerging industry.

FY21 outlook

Fortescue has increased its FY21 shipment guidance to 178Mt to 182Mt due to the strong first half performance and the continued focus on debottlenecking to optimise capacity.

FY21 guidance for C1 costs have been updated to US$13.50 per wet metric tonne (wmt) to US$14 per wmt as a result of a revision to the exchange rate assumptions.

Summary thoughts

I thought this was an incredible result considering Fortescue generated large profit in the prior corresponding period. Fortescue seems to be cementing itself as a blue chip to watch, particularly for income investors. I think the investing into green projects could prove to be a smart idea, if they’re successful. However, for investors focused on capital growth, it’s important to note that the current share price and profit is heavily reliant on China continuing to buy large quantities of iron ore.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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