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Fortescue share price pushes higher after declaring huge FY 2020 dividend

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The Fortescue Metals Group Limited (ASX: FMG) share price is pushing higher after the release of its full year results.

At the time of writing the iron ore producer’s shares are up 2% to $18.36.

How did Fortescue perform in FY 2020?

Fortescue certainly was on form in FY 2020 and delivered record shipments, revenue, earnings, and cashflow over the 12 months. Management advised that this reflects the successful execution of its integrated operations and marketing strategy, and strong customer demand.

For the 12 months ended 30 June 2020, Fortescue posted a 29% increase in revenue to US$12,820 million. This was driven by shipments of 178.2 million wet metric tonnes and a 21% lift in its average realised price to US$78.62 a tonne.

And combined with a small decrease in its C1 costs to US$12.94 per tonne, its earnings grew even quicker. Fortescue’s underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased 38% to US$8.4 billion.

On the bottom line, the mining giant’s net profit after tax lifted 49% to US$4.7 billion or US$1.54 (A$2.29) per share.

Bumper dividend for shareholders.

Fortescue continued to generate strong underlying cashflows during the year. Net cash from operating activities came in at US$6.4 billion, up 47% on FY 2019’s result.

Together with its strong balance sheet, this allowed the Fortescue board to declare a fully franked final dividend of A$1.00 per share. Combined with its interim dividend of 76 Australian cents per share, Fortescue has increased its full year dividend by 54% to A$1.76 per share in FY 2020. This represents a 77% payout ratio of FY 2020 net profit after tax, which is consistent with its policy of a payout ratio of 50 to 80% of net profits.

To be eligible for this dividend, investors will need to own its shares before the ex-dividend date of 31 August. It will then be paid to eligible shareholders on 2 October.

FY 2021 guidance.

In FY 2021 the company is expecting a similar level of iron ore shipments. It has provided guidance of 175 to 180 million tonnes.

It is also forecasting flat to marginally higher costs of US$13.00 to US$13.50 per tonne. This is based on an exchange rate of 70 U.S. cents.

Capital expenditure is forecast to be US$3 billion to US$3.4 billion. This is inclusive of US$1 billion of sustaining, operational, and hub development capital, US$140 of exploration expenditure, and US$1.9 billion to US$2.3 billion for major projects. The latter includes its Eliwana, Iron Bridge, and Energy projects.

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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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