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Here’s why the Fortescue (ASX:FMG) share price is edging lower

Credit: Chatham House

The Fortescue Metals Group Limited (ASX: FMG) share price is edging lower on Friday.

In morning trade, the iron ore giant’s shares are down 0.5% to $24.79.

Why is the Fortescue share price edging lower?

Investors have responded in a subdued fashion to Fortescue providing the market with guidance for the first half of FY 2021.

According to the release, Fortescue’s Chairman and founder, Dr Andrew Forrest AO, has recorded to a live audience the first ABC Boyer Lecture for 2021.

The release explains that the lecture includes a reference to Fortescue’s net profit after tax for the month of December. Which, based on preliminary unaudited management accounts, came to over US$940 million thanks to sky high iron ore prices.

In light of this information being out in the public, the company has decided to release its guidance for the first half ahead of the formal release of its results on 18 February.

What is Fortescue expecting in the first half?

The iron ore giant advised that the preliminary net profit after tax for the six months ended 31 December 2020 on an unaudited basis will be in the range of US$4 billion to US$4.1 billion.

As a comparison, in the first half of FY 2020, Fortescue reported a net profit after tax of US$2.5 billion. This means that the company is expecting to deliver an impressive 60% to 64% increase in net profit after tax over the prior corresponding period.

This bodes well for dividends. FY 2020’s interim dividend was a fully franked 76 cents. If Fortescue were to increase its interim dividend by the same amount, it will mean an interim dividend of ~$1.23 per share.

Which, based on the current Fortescue share price and purely from the interim dividend, implies a 5% yield for investors.

However, as great as this is, the market appears to have already factored this into the Fortescue share price. Hence the subdued response this morning.

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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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