Should investors dig the Fortescue share price in July?

Fortescue is suffering in the sell-off. Will things get better in July?

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Key points

  • The iron ore miner has been through a lot of volatility in recent times 
  • While brokers aren’t particularly positive at the moment, they are expecting big dividends from the company in FY23 
  • Fortescue is scheduled to release its next quarterly production report soon 

The Fortescue Metals Group Limited (ASX: FMG) share price dropped by double-digits in June. Including the fall on Friday, the past month shows a drop of 17%.

As an iron ore miner, Fortescue is exposed to movements in the iron price as well as sentiment about commodities and miners.

Resource businesses are price-takers. That means miners have to take the price that buyers are buying at. The iron ore price has seen a lot of volatility over the last year or so.

There have been times of strong demand from China. There was also a period last year when Chinese steel demand production fell (perhaps to reduce emissions before the Winter Olympics).

Looking at where Fortescue shares were a year ago, the Fortescue share price has fallen close to 30%.

After a difficult time in recent history, could the ASX mining share mount a turnaround starting in July?

Broker thoughts on the Fortescue share price

Brokers don’t have a working crystal ball, but they like to estimate price targets – that’s where they think the Fortescue share price will be in 12 months from the date of the price target opinion.

Different brokers have various optimistic or pessimistic thoughts on which direction Fortescue is headed over the next year.

The broker Macquarie currently has a neutral rating on the big iron ore miner. Its price target is $18. After the recent fall of the ASX mining share, that implies a possible rise of around 5%. Iron ore prices are remaining stronger for longer, while there’s also currently a reduced discount for Fortescue’s iron ore, which is lower quality than the iron from some of its main competitors.

The broker Morgan Stanley currently has an underweight rating on the miner. Its price target is $14.20, which implies a possible fall of approximately 17%. Chinese lockdowns led to the broker reducing its expectations for commodity prices. The amount of money that Fortescue is spending on its green initiatives through Fortescue Future Industries (FFI) is also a concern for the broker.

The broker Ord Minnett has a hold rating on the business. The Fortescue share price target here is $19, which implies a rise of around 11%. Ord Minnett thinks Fortescue is the best iron ore producer.

Dividend expectations

Of the three brokers I’ve mentioned, I’ll outline two of the projections for the Fortescue grossed-up dividend yield in FY23.

Ord Minnett has estimated that Fortescue could pay a grossed-up dividend yield of 15%. Macquarie has pencilled in a grossed-up dividend yield of 17.9%.

Next steps for Fortescue

Fortescue is scheduled to release its quarterly production report for the three months to June 2022.

Then comes reporting season for the year to 30 June 2022, where we’ll learn of Fortescue’s net profit after tax (NPAT) for FY22, the final dividend and comments for the upcoming year (and beyond).

Motley Fool contributor Tristan Harrison has positions in 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 Scott Phillips.

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