It was a tough month for the Fortescue Metals Group Limited (ASX: FMG) share price in September.
During the period, the mining giant's shares lost almost 9% of their value.
This means the Fortescue share price is now down 22% over the last six months.
Why did the Fortescue share price sink in September?
There were a few catalysts for the weakness in the Fortescue share price last month.
The first was the company's shares trading ex-dividend for its fully franked final dividend of $1.21 per share. This dividend was then paid at the end of last month on 29 September.
Another was the broad market weakness driven by global recession concerns.
Finally, also weighing on the Fortescue share price was the unveiling of the company's decarbonisation plans.
Decarbonisation comes at a huge cost
Last month Fortescue announced that it intends to spend US$6.2 billion or A$9.2 million to decarbonise its Pilbara operations.
This investment includes the deployment of an additional 2-3 GW of renewable energy generation and battery storage and the estimated incremental costs associated with a green mining fleet and locomotives.
Fortescue expects net operating cost savings of US$818 million per annum from 2030 with a payback of capital by 2034.
However, a growing number of analysts believe that this will inevitably lead to sizeable dividend cuts from the mining giant in the coming years. And with Fortescue's shares popular with income investors, some appear to have been dumping them because of this.
Goldman Sachs, for example, commented:
Today's announcement and commitment underpins our view that FMG is at an inflection point on capital allocation, and to fund the ambitious decarb strategy, we assume the dividend payout ratio falls from the current 75% to 50% from FY24 onwards.
Goldman is now forecasting fully franked dividends per share of 81 US cents in FY 2023, 37 US cents in FY 2024, and then 31 US cents in FY 2025. Based on the current Fortescue share price and exchange rates, this will mean yields of 7.2%, 3.2%, and 2.7%, respectively.
The broker also sees plenty of downside risk for its shares. It has a sell rating and $12.10 price target on them.
