Of all of the major ASX blue chip shares, Fortescue Metals Group Limited (ASX: FMG) has probably had the best financial year.
It being the first day of July, it's now time to welcome in FY2021. This gives us a great opportunity to see how some S&P/ASX 200 Index (ASX: XJO) shares have performed over the past 12 months.
And boy, has Fortescue performed.
On 1 July 2019, Fortescue Metals was asking $9.15 per share (which at the time seemed high in its own right). But fast forward to today, and Fortescue closed the financial year at $13.85. That's a handy 51.37% gain for the year and a 'time-and-a-half' return for investors. If you include Fortescue's hefty, fully franked dividend payments, the return is even better at somewhere around 58.5%. It's not the highest return you could have achieved from an individual ASX 200 share, but it's certainly better than a poke in the eye!
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Why did Fortescue shares go bananas in FY20?
There's one major reason Fortescue shares have raised the roof in FY20: the price of iron ore. That's because Fortescue is about as pure an iron ore play that you can find on the ASX 200. It generates approximately 95% of its revenues from the extraction and shipping of iron ore. In its latest annual report (2019), Fortescue told investors its rough cost of extracting and selling one tonne of iron ore came in around US$12-13. Now, the iron ore price has fluctuated wildly over the past 12 months (as it is wont to do). Over the first half of the financial year, we saw prices go from over US$115 per tonne to as low as US$80 per tonne.
But over the course of the calendar year, albeit with a few ups and downs, overall the opposite swing has occurred. Back in early April, iron ore was asking around US$77 per tonne. But today, the iron ore price is back over US$100 and is seemingly looking like staying there. This has mostly been the result of a supply squeeze sparked by collapsing output from the Brazilian market (which has been extremely hard hit by the coronavirus pandemic).
And it's this price swing that I think has been behind the massive surge in Fortescue shares over the past year.
Is Fortescue a buy today?
Normally, I am distrusting of ASX resources shares. They are more or less subject to the whims of the commodity market, which can easily double or erase a miner's profitability in any given year. But Fortescue is an extremely well-run company with, in my view, one of the most successful management teams on the ASX, headed by the reputable Andrew 'Twiggy' Forrest. Due to Fortescue's superbly low cost base for mining iron ore, I think the company will be well-placed this year to continue to grow and pay healthy dividends. And this is of utmost importance at a time when most ASX dividend payers are struggling. I wouldn't call Fortescue shares cheap right now, but I would also happily consider them for a well-rounded ASX dividend portfolio.
