Fortescue (ASX:FMG) share price under spotlight with BIG FY21 dividend forecast

The Fortescue share price is on watch for its expected large FY21 dividend.

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The Fortescue Metals Group Limited (ASX: FMG) share price is going to be under scrutiny between now and its FY21 report release with investors wondering how large the final dividend is going to be.

Fortescue released its FY21 fourth quarter update to the market yesterday.

Fourth quarter update

Fortescue said that for the three months to 30 June 2021, it saw record iron ore shipments of 49.3 mt. Fortescue also shipped 182.2 mt for FY21. The annual shipment total beat the company’s guidance of 182 mt.

The iron ore miner saw record revenue of US$168 per dry metric tonne (dmt) for the quarter and US$135 per dmt for FY21.

Its C1 cost for the fourth quarter was US$15.23 per wet metric tonne (wmt). That was up 2% on the previous quarter. The C1 cost for FY21 was US$13.93 per wmt. That was in line with guidance.

Fortescue said that strong free cashflow generation contributed to the business ending with net cash of US$2.7 billion at 30 June 2021. This compares to net debt of US$1 billion at 31 March 2021.

The Fortescue Metals share price rose around 2% yesterday.

Fortescue Future Industries (FFI) also got a sizeable mention. FFI is the division that’s looking to looking to take a leading role in green energy and green products to produce green electricity, green hydrogen, green ammonia and other green industrial products.

FFI said its vision is to make renewable green hydrogen the most globally traded seaborne energy commodity in the world. It has made progress in a number of areas. For example, it said it has achieved successful combustion of ammonia in locomotive fuel, with a pathway to achieve completely renewable green fuel.

Dividend expectations

There was no specific mention about the company’s dividend in the quarterly update.

However, Fortescue has previously said that it’s going to pay out around 80% of its net profit to shareholders, whilst investing 10% of profit into FFI and another 10% in other areas of the business for growth. Fortescue did mention in the update that it achieved “strong free cashflow”.

Other businesses in the iron ore world are seeing strong profits and rewarding shareholders with big dividends.

Rio Tinto Limited (ASX: RIO) recently announced its half-year result which showed operating cashflow growth of 143%, underlying earnings growth of 156%, ordinary dividend growth of 143% to US$3.76 per share and the Rio board declared a special dividend of US$1.85 per share.

According to numbers on Commsec, Fortescue is expected to pay a dividend of $3.66 per share in FY21. That translates to a grossed-up dividend yield of almost 20% at the current Fortescue Metals share price. Commsec numbers then suggest an annual dividend of $3.49 per share in FY22 – that would be a grossed-up dividend yield of almost 19%.

FY22 guidance

Looking at the next 12 months, Fortescue said that iron ore shipments are expected to be between 180mt to 185mt. The mid-point of that guidance suggests a slight increase on FY21.

The C1 cost is expected to be between US$15 per wmt to US$15.50 per wmt. That compares to a FY21 C1 cost of US$13.93.

Capital expenditure, excluding FFI, is expected to be between US$2.8 billion to US$3.2 billion. That includes US$1.1 billion on sustaining capital, $200 million on hub development, at least US$250 million on operational development, $180 million on exploration and studies and between US$1.1 billion to $1.4 billion on the major projects of Iron Bridge and PEC.

Fortescue Metals CEO Elizabeth Gaines said about FY22:

Building on a second consecutive year of record performance, our guidance for FY22 reflects our ongoing commitment to optimising returns from integrated operations and marketing strategy, with shipments in the range of 180 to 185 million tonnes. Together with our focus on investing in growth through the Iron Bridge Magnetite project and Fortescue Future Industries, we will continue to deliver strong results to ensure all our stakeholders benefit from Fortescue’s success.

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Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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