Why the Fortescue (ASX:FMG) share price has underperformed the ASX 200 in the last year

After a bumper 2020, Fortescue shares are struggling this year

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It wasn't too long ago that the Fortescue Metals Group Limited (ASX: FMG) share price was handily outperforming the broader S&P/ASX 200 Index (ASX: XJO). But alas, times have changed.

Fortescue shares are currently going for $20.93 apiece. That's up 1.06% for the day at the time of writing.

Unfortunately, that means Fortescue shares are also down more than 15% in 2021 so far. That's not a very pleasant contrast with the ASX 200, which is currently up around 12% over 2021.

But contrast that with 2020. Over last year, the ASX 200 ended up losing around 3.5%, largely thanks to the coronavirus-induced market crash we had early in the year.

In stark contrast, Fortescue spent last year climbing by more than 100%, from around $11 a share in January to almost $23.50 by December.

Female worker in hard hat puts thumb down while on the phone

Image source: Getty Images

Fortescue shares' monster 2020

Putting those numbers in perspective, suddenly Fortescue's 2021 performance thus far doesn't seem so bad. After all, Fortescue shares are still up close to 150% over the past 2 years to date. It's certainly not rare to see a company, especially a miner like Fortescue, undergo a bit of a pullback after going on a run like we saw last year.

But that's all water under the bridge now. So what has been holding Fortescue back in 2021 after 2020's bumper year? Well, we only have to look at the price of iron ore – Fortescue's lifeblood – to understand what's happened with this miner.

As you may know, iron ore has gone on an absolute tear over the past year or two. According to Market Insider, iron ore was fetching a price of around US$80 a tonne in early 2020. But by June of that year, it had already cracked US$100 per tonne. And by the end of the year, it was up to US$150.

Investors could evidently see the writing on the wall, knowing that these record-high prices were about to tip a truckload of cash into the low-cost miner Fortescue's coffers. By the time iron ore hit US$200 a tonne back in May, speculation over the kinds of dividend Fortescue would be able to pay out was hitting fever pitch.

March had just seen the miner dole out its largest dividend payment ever, at $1.47 a share. It will pay out an even higher final dividend of $2.11 per share on 30 September.

So what's gone wrong in 2021?

Now investors have an idea of what to expect from Fortescue in terms of dividends for the rest of the year, attention is likely turning, once again, to the price of iron ore.

The industrial metal has spent the past few months falling steeply from its highs of more than US$200 a tonne. As it stands today, one tonne of iron ore is going for just US$140 a tonne.

It's probably a combination of these falling iron ore prices, the company going ex-dividend in March for its monster payout (it trades ex-dividend for its final payout next Monday), and Fortescue's stunning year last year, that is proving a drag on the Fortescue share price over the year to date.

At the current Fortescue share price, this miner has a market capitalisation of $64.04 billion and a massive dividend yield of 17.2%.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. 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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