The Fortescue Metals Group Limited (ASX: FMG) share price is among the top performers on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index today after it handed in its earnings report card and declared a special dividend.
The FMG share price surged 6.6% to a two-year high of $6.77 in early trade when larger peers like the BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price are up between 1.5% and 2% each.
Anyone who doubted that the market was forward looking should look at Fortescue. The big rally in the stock comes even as the miner posted an 11% slump in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) over the same time last year to US$1.6 billion as revenue dipped 4% to US$3.5 billion.
Meanwhile, costs have also increased. The C1 cost measure rose 8% over the previous corresponding period to US$13.11 per wet metric tonne (wmt).
However, things are looking up, according to management. Earnings are up when compared to 2HFY18 and Fortescue is forecasting higher production of its ore in the current half. This means C1 cost should fall due to economies of scale.
First special dividend
It really helps too that Fortescue is splashing the cash. The miner will for the first time (at least since 2011) pay a special fully franked dividend of 11 cents a share.
"The Board have declared a fully franked interim dividend of A$0.19per share, which is a65per cent pay-out ratio of 1H19 net profit after tax (1H18: 40 per cent) and a fully franked special dividend of A$0.11per share," said Fortescue chief executive, Elizabeth Gaines.
"When combined, dividend payments for 1H19 total A$0.30per share which is 30 per cent higher than the total dividends paid for the whole of FY18, reflecting confidence in the outlook."
Foolish takeaway
It's that confidence in the miner's outlook that's fuelling the price rise. It also helps that the outlook for iron ore prices have also improved considerably since the tragic tailings dam collapse in Brazil, which has forced Vale to stop production at a number of its mines.
The whole sector could see further consensus upgrades too as the issues afflicting Vale's tailings dams will probably take time to resolve.
This means around 4.5% of global supply of the steel making ingredient could disappear from the market, and that has prompted some experts to predict that we will soon be seeing US$100/tonne ore.
The price of the commodity gained around 15% and is trading at US$88.56 a tonne.
Fortescue joins a growing list of companies paying a special dividend this year. This includes BHP, South32 Ltd (ASX: S32) and Telstra Corporation Ltd (ASX: TLS).
