Fortescue Metals Group (ASX:FMG) is still a juicy dividend stock
Owen Raszkiewicz
FMG FY22 results highlights:
Revenue: $17.4 billion (down 22%)
Net profit: $6.2 billion (down 40%)
Full-year dividends per share: $2.07 (down from $3.58)
Fortescue's profits and revenue were noticeably lower in the year ended June 30, 2022. However, this is almost purely because iron ore prices fell back from their Covid highs.
Fortescue achieved a 4% increase in shipments (189 million tonnes) but the average selling price of its iron ore fell from $US135 per dry tonne to $US99.80 per dry tonne. That explains the revenue fall.
On the cost line, Fortescue reported a cost per tonne (at the mine site, known as 'C1') of $US15.90 per wet tonne. This was up around 14% due to increases in diesel, labour and consumables.
Is Fortescue's dividend sustainable?
The key consideration for any dividend investor should be 'how sustainable is the dividend?' Companies like Washington H. Soul Pattinson (ASX: SOL) have given us the gold standard of dividend payments.
When it comes to resource shares in particular, however, your sensitivity to changes in income should be even more heightened. You see, when a company, like FMG, produces a commoditised product, like iron ore, its dividend payments are less predictable -- because commodity prices can swing wildly from one year to the next. Contrast this with Soul Patts, which owns over 10 different businesses.
Source: Selfwealth, September 2022
As of September 2022, analysts are forecasting a reduction in Fortescue's dividend payments - as commodities taper off and costs continue to rise.
Buy, Hold or Sell?
Buying into a company like Fortescue is not for the light-hearted, given the ever-present uncertainty of iron ore prices.
However, the company remains one of Australia's (and the world's) most profitable mining companies, and an innovator in future technologies, such as green hydrogen, decarbonisation and electric technologies. Therefore, FMG probably deserves a spot on watch-lists and maybe even a small part in a long-term focused, diversified portfolio.
Owen Raszkiewicz is the Founder of Rask, and host of Selfwealth Live. You can follow him on Twitter.
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