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Why Fortescue Metals shares could be a buy

After releasing its 2019 FY results, iron ore producer Fortescue Metals Group Limited (ASX: FMG) has been high on many investors’ watchlists.

And that’s with good reason.

As a global leader in the iron ore industry, with mining assets in the Pilbara region of Western Australia and a dividend yield of 5.11, it’s a stock worth watching.

In its 26 August 2019 report, the group revealed that its mined ore tonnes increased 12% to 206.7 million and processed tonnes increased by 7% to 176.0 million.

It also posted a record underlying earnings before interest, tax, depreciation and amortisation of $6 billion, which is a 90% lift from its previous 2018 results.

Should you buy Fortescue Metals shares?

Overall, it’s been pretty smooth sailing for Fortescue Metals since its listing. With many countries bent on growth and building infrastructure, Fortescue’s revenue has been gradually rising – which is something many investors might look for in a more reliable mining stock. 

At the time of writing, Fortescue Metals’ shares are trading at $8.75 apiece, an increase of 1.74% in morning trade. Over the last month we have seen an upward trend in the company’s share price, which has increased more than 21% since Monday 12 August.

Iron ore prices obviously play a big part in a stock like Fortescue Metals’ buy status. Supply and demand issues of iron ore and its subsequent price increase have seen Fortescue’s average revenue per tonne jump 45% to US$65 per dry metric tonne (dmt), compared to last years US$44/dmt.

This is mainly down to continued strength in benchmark iron ore prices following the supply disruption in the first quarter of 2019 in both Brazil and Australia. 

On top of this, renewed strength in Chinese steel production has risen by 9.9% in 2019HY, which saw an increase in Fortescue’s product demands.

What’s in it for Fortescue Metals Group shareholders?

You can’t look past Fortescue’s return for shareholders. Its 2019 growth is clear, with a record fully franked dividends of $1.14 per share, compared to the $0.23 return in 2018FY.

And this is likely to continue, with Fortescue forecasting that through FY20 the company is in a good position to continue to deliver advantages to all stakeholders.

This is good for shareholders, as 2019 results reflect Fortescue Metals’ focus on its productivity and efficiency initiatives – a strategy that seems to be working.

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Motley Fool contributor leahfrances 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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