Why the Fortescue (ASX:FMG) share price is crashing 11% today

The Fortescue share price has started the week deep in the red…

| More on:
share price plummeting down

Image source: Getty Images

The Fortescue Metals Group Limited (ASX: FMG) share price is the worst performer on the S&P/ASX 200 Index (ASX: XJO) on Monday by some distance.

At the time of writing, the iron ore giant’s shares are down a sizeable 11% to $18.59.

This latest decline means that the Fortescue share price is now down 30% from the record high of $26.58 it reached at the end of July.

Why is the Fortescue share price crashing lower?

The good news for shareholders is that the weakness in the Fortescue share price on Monday has nothing to do with its operations or the iron ore price. In fact, the latter rose 3.8% on Friday night.

Rather, this sizeable decline has been driven by the company’s shares going ex-dividend this morning for its upcoming final dividend payment.

When a share trades ex-dividend, it means it is trading without the rights to an impending dividend payment. As a result, a share price will usually drop in line with the dividend amount to reflect the fact that new buyers of the shares will not be receiving it.

The Fortescue dividend

In the case of Fortescue, last month the mining giant released its full year results for FY 2021 and declared a massive fully franked $2.11 per share final dividend.

This huge payout is reflective of its strong shipments, low costs, and sky high iron ore prices, which underpinned bumper free cash flows during the 12 months.

Based on the Fortescue share price at Friday’s close, this final dividend represented a 10% dividend yield. Which explains why its shares are falling so heavily today.

Eligible shareholders can now look forward to receiving this dividend in their bank accounts in a touch over three weeks on 30 September. Unless of course they are taking advantage of the company’s dividend reinvestment plan.

Should you invest $1,000 in Fortescue right now?

Before you consider Fortescue, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Fortescue wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor James Mickleboro 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.

More on Share Fallers