How big will the Fortescue (ASX:FMG) dividend be in FY 2021?

The Fortescue Metals Group Limited (ASX:FMG) dividend yield could be huge in FY 2021 according to one leading broker…

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A smiling woman with a handful of $100 notes, indicating strong dividend payment by Thorn Group

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The Fortescue Metals Group Limited (ASX: FMG) share price may be trading lower today, but that doesn’t diminish the incredible gains it has made over the last 12 months.

Since this time a year ago, the iron ore producer’s shares have doubled in value from $12.11 to $24.23.

Why has the Fortescue share price doubled in value?

The strong gains made by the Fortescue share price over the last 12 months have been driven by the rapid rise of the iron ore price.

This has led to Fortescue reporting significant increases in its margins and delivering bumper free cash flows.

And with the majority of this free cash flow being returned to shareholders, it has been raining dividends.

More dividends to come

The good news for shareholders is that there could be more big dividend payments to come.

According to a note out of Bell Potter, this morning the broker increased its dividend estimate for FY 2021 to a total of $4.04 per share.

Based on the latest Fortescue share price, this represents a massive fully franked 16.7% dividend yield.

However, it is worth noting that its price target stands at $23.96. As a result, Bell Potter has a hold rating on its shares.

What did Bell Potter say?

The broker commented: “The extraordinary iron ore price action we have continued to see through the June quarter has prompted us to further refine our financial performance forecasts for FMG as we head towards the end of FY21.”

“Marking-to-market the iron ore price for the June 2021 quarter to date shows the average price now sits at ~US$184/dmt. This compares with our previous forecast of US$160/dmt and the current spot price of US$212.90/dmt. This lifts our 2HFY21 forecast to US$179/t, up 9% from US$164/dmt previously.”

“Our higher forecast iron ore price flows through to modest earnings and dividend increases. It is partially offset by a higher AUD:USD forecast and the slightly higher costs reported in the March 2021 quarterly. Our FY21 dividend increases 4% to A404cps, inclusive of a fully franked final dividend payment of A257cps (from A241cps), a 10.4% yield on its own,” it concluded.

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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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