The Fortescue Metals Group Limited (ASX: FMG) share price is an interesting one for investors looking for dividend income to think about.
Fortescue is one of the biggest iron ore miners in Australia. It’s also one of the biggest in the world seeing as Brazil is the only other country with major iron ore operations at the moment.
How big is the current dividend yield?
It’s very important to remember that dividends are not like interest payments from a bank account. They can be volatile year to year, to say the least.
Fortescue has committed to pay 80% of its net profit out each year as dividends.
In the good times for commodity prices, those profits (and dividends) can be very high for good and efficient businesses like Fortescue.
Over the last 12 months, Fortescue has paid $2.47 of dividends per share to shareholders. That translates to a fully franked dividend yield of 10.3%.
However, FY21 was a particularly strong year for the iron ore price, so the profit and dividend could be even higher once it reports its FY21 result.
Using the forecast numbers on Commsec, Fortescue is expected to make $4.29 of profit/earnings per share (EPS)
in FY21 and pay a dividend of $3.51 for FY21. That would turn into a fully franked yield of 14.7% at the last Fortescue share price.
Is it time to jump on the Fortescue share price?
Fortescue is really good at what it does. It has achieved efficiencies and strong technology advantages all across the business such as automated haulage trucks.
I’m also very impressed by the push with Fortescue Future Industries (FFI) to find green initiatives that can help Fortescue and the wider world.
We have heard recently that FFI is making good progress. It is also apparently close to being involved in a huge project in Africa.
However the important division, by a long way, is the iron ore operations. Though Fortescue is exploring for other commodity projects across the world.
Iron ore makes up almost all of the profit generation, relying on Chins to buy vast amounts of the commodity.
There may be diversification opportunities for the company in the future, such as green steel, but currently what happens to the iron ore price largely dictates Fortescue’s returns.
The iron ore price has been very strong, and still is. But as investors on the ASX, we are looking at the Fortescue share price (an dividends) that dictates our returns. I think the share price is too high for me to want to buy any more shares for my own portfolio, despite the huge yield. It doesn’t make a lot of sense to buy at the top of the iron ore market.
I’d wait for a materially lower Fortescue share price before buying shares for the long-term.
Until then, they may be some other ASX dividend shares that could be good value for income.
