Is the Fortescue (ASX:FMG) dividend really worth 28% in November?

The iron ore giant’s current share price indicates a huge dividend yield. But is that really true? We take a closer look

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The Fortescue Metals Group Limited (ASX: FMG) share price has been one to watch in 2021 so far.

It first got chins a-wagging when Fortescue hit a new all-time high of $26.58 a share back in July. That represented a gain of close to 40% just between late March and that date. This was of course fuelled by record-high iron ore prices, which climaxed at more than US$220 a tonne mid-year.

But in more recent months, the story has turned fairly nasty. Iron ore was not destined to remain at those highs for long. As of today, it is sitting at just over US4100 a tonne after falling close to US$90 recently. This naturally sent the Fortescue share price plummeting. It fell from over $26 a share in July to a new 52-week low of $13.90 by late October

It’s worth noting the Fortescue share price has recovered somewhat since then. It’s today sitting at $17.88, nearly 30% above its new low. Perhaps the hullabaloo surrounding Fortescue Future Industries has helped in this matter.

But at this current share price, Fortescue shares now offer a seemingly impossible dividend yield of 20.02%. Get ready for this — grossed-up with Fortescue’s full franking, that dividend yield is worth an insane 28.6%.

Can that be true? Are Fortescue shares really offering a yield of that stupendous magnitude right now?

Does Fortescue really have a 28% dividend on the table?

Well, not quite. A trailing dividend yield indicates the yield that investors would have received at the current Fortescue share price over the last 12 months. It doesn’t mean this will stay the same for the next 12 months.

So yes, Fortescue’s last two (fully franked) dividend payments came in at $2.11 per share and $1.47 per share respectively. That totals $3.58 a share in total and comes to a yield of 20.02% on the current Fortescue share price. But remember, these dividends were funded by the record-high iron ore prices we’ve just discussed. The market knows that with iron ore now less than half of the price it was just a few months ago, these dividends are not likely to be repeated next year. 

It might not be as bad as you might think though. As my Fool colleague Tristan covered earlier this week, brokers at Macquarie Group Ltd (ASX: MQG) are predicting Fortescue will still be able to pay out $1.97 in dividends per share for FY 2022, and $1.42 per share in FY 2023. That would still equate to sizeable raw yields of 11.02% and 7.94% respectively on the current Fortescue share price.

There will be more than a few shareholders who would be hoping that indeed turns out to be the case.

At the current Fortescue share price of $17.88, this miner has a market capitalisation of $55.42 billion.

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

Before you consider Fortescue Metals, 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 Metals wasn't one of them.

The online investing service he’s run for nearly 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 August 16th 2021

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 recommended Macquarie Group Limited. 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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