The Fortescue Metals Group Limited (ASX: FMG) share price could be one to consider for the dividend yield after the iron ore giant's big price decline in recent weeks.
How much has it fallen?
Over the last month the iron ore miner has fallen 21%. It has fallen over 40% since 29 July 2021. That is a large decline considering Fortescue is one of the biggest ASX shares. Even after the plunge, the market capitalisation is now $45.4 billion according to the ASX.
The iron ore price has seen a huge decline. In May 2021 the price was more than US$230 per tonne and it has since dropped more than US$130 per tonne. That reduces the profit potential of Fortescue because iron ore is what it is focused on.
What has been sending the Fortescue share price and iron ore down?
There have been various issues that have been on investor's minds. Supply from Brazil is expected to increase in the coming months. Demand from China is reducing as authorities told steel producers to cut production to decrease emissions.
But over the last week, there was concern that the Chinese developer Evergrande may collapse. Everegrande is one of the largest users of steel (and iron ore). However, as reported by my colleague Kerry Sun:
According to Reuters, Evergrande Group's main unit, Hengda Real Estate Group Co Ltd, said that it will make a bond interest repayment on Thursday, 23 September.
Despite the small win, Evergrande will continue to face stress tests with another 7-year dollar bond due next Wednesday, 29 September.
The real estate conglomerate has seen its liabilities balloon to over US$300 billion and has already fallen behind in payments to stakeholders including banks, building suppliers and holders of investment products.
Is the Fortescue share price a buy for its 16% dividend yield?
The business isn't likely to generate as much profit in FY23 as FY21. However, due to the profit decline, the prospective dividend is still quite high.
Analysts at Morgans think that Fortescue is going to pay a FY23 annual dividend of $1.757 per share. That represents a grossed-up dividend yield of 16.3%.
However, despite projecting a large dividend in the coming two years, Morgans rates the Fortescue share price as a sell with a price target of $14.15.
The broker thinks there will be continuing pressure for the iron ore price.
UBS also believes that Fortescue shares are a sell after the rapid decline of the iron ore price. UBS is even more bearish on the dividend that Fortescue could pay in FY23 – it's expecting a full year payment of $1.327 per share. That translates to a grossed-up dividend yield of 12.3%. UBS reckons the current Fortescue share price is valued at 12x FY23's estimated earnings.
