Why the Fortescue share price dropped 9% lower today

The Fortescue Metals Group Limited (ASX:FMG) share price has crashed lower on Wednesday. Here's why…

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In morning trade the Fortescue Metals Group Limited (ASX: FMG) share price has been amongst the worst performers on the benchmark S&P/ASX 200 index.

At the time of writing the iron ore producer's shares are down almost 9% to $8.21.

Why is the Fortescue share price down 9%?

Whilst weakness in iron ore prices weighed on the shares of BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), and Fortescue on Tuesday, the majority of today's decline has nothing to do with the price of the base metal.

Most of Fortescue's share price decline today can be attributed to its shares trading ex-dividend this morning.

When a share goes ex-dividend it means it is trading without the rights to its next dividend, so the share price will usually drop in value by the amount of the expected dividend.

What dividend is Fortescue paying?

Last week Fortescue announced that its board had declared a fully franked dividend of A$0.60 per share, bringing its total dividends for FY 2019 to-date to A$0.90 per share. This is inclusive of the A$0.19 per share interim and A$0.11 per share special dividends declared in February.

Fortescue chief executive officer, Elizabeth Gaines, explained the rationale for the surprise dividend.

She said: "This dividend reflects Fortescue's unwavering determination to deliver shareholder returns through dividends and investment in growth. The strength of our operating cashflows enables further accelerated distribution of franking credits to eligible shareholders, inclusive of the FY19 interim and special dividends totalling A$0.30 per share."

Adding: "The ability to deliver this increased return to our shareholders reflects the success of our integrated operations and marketing strategy, enhanced product mix as well as the strength of demand for iron ore."

On Monday iron ore prices were trading at multi-year highs thanks to a combination of robust demand and supply disruptions in both Australia and Brazil.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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