I own Fortescue Metals Group Limited (ASX: FMG) shares in my portfolio. It's one of the larger positions I hold. In my mind, Fortescue is one of the shares that I may hold for the longest.
Readers will probably know Fortescue as an iron ore mining giant. It produces huge amounts of iron – in FY23, it's expecting iron ore shipments to be between 187mt to 192mt. It has a market capitalisation of $52 billion, according to the ASX.
There are two periods of time that I'm thinking about with my Fortescue shares.
Next few years
Fortescue is selling huge amounts of iron ore to China. In doing so, it's generating large amounts of cash flow and a significant portion of this is being paid out in dividends to shareholders.
While I hold my Fortescue shares over the next few years, I'm expecting to receive very healthy dividends. Ultimately, how big the profit and dividend end up being will be decided by the iron ore price.
With expectations of a lowering iron ore price and a falling profit over the next two financial years, estimates on CMC Markets still put the grossed-up dividend yield at 14% for FY23 and 9% in FY24. However, my average buying price for my Fortescue shares is lower than the current price, so my yield on cost is even higher. I am fortunate to receive these big dividends while waiting for the green side of the business to develop.
It's also worth mentioning that Fortescue is looking for other commodities, which would be a useful bonus. For example, it's exploring for copper and gold in Western Australia and South Australia.
It's also trying to find lithium. According to reporting by the Sydney Morning Herald, it has been applying for exploration leases to look for lithium near Bridgetown and the Greenbushes mine – which is the world's largest hard rock lithium operation.
Long-term
What I'm about to write about is why I see myself holding shares until at least 2030 and, potentially, for decades longer.
Fortescue has a division called Fortescue Future Industries (FFI) which wants to take a global leadership position in green energy and technology, with the goal of creating a global portfolio of green hydrogen-producing hubs.
The first green hydrogen (and revenue from that) may only be a few years away as FFI partners with Incitec Pivot Ltd (ASX: IPL) to produce green ammonia at Gibson Island.
By 2030, FFI is hoping to produce 15mt of green hydrogen per annum. It already has clients lining up to buy significant amounts of its production – Europen energy company E.ON wants to buy up to 5mt per annum for the European market by 2030. I think this could help Fortescue shares significantly if it reaches those milestones.
As the world decarbonises, I think green hydrogen and green ammonia usage are just going to grow. Industries like ships, planes, and heavy machinery could all move to using green hydrogen. This could be the start of decades (or much longer) of global green hydrogen use – just look at how long oil has been used by the world. Indeed, if green hydrogen turns into the 'new oil' for big vehicles, then I could see myself owning my Fortescue shares for the rest of my life.
As well, Fortescue can diversify its earnings in the green space, with advanced batteries and other technology or commodities.
Foolish takeaway
Fortescue has an exciting future. I think the future of iron ore may not be as strong as the last few years, particularly if Chinese buying slows down later this decade. However, I believe that the green energy side of Fortescue is very promising. Indeed, I'll be looking to buy more shares if the company's share price drops to at least $16 or below.
