The Fortescue Metals Group Limited (ASX: FMG) share price has been on a rollercoaster over the past year.
But, looking back a year ago to this article I wrote, my Fortescue shares have returned a total of 33%. That's a dividend return of just over 14% (excluding franking credits) and the rest has come from capital growth.
When I wrote that article, the Fortescue share price was trading at just over $14. The lower valuation was one of the main reasons why I was attracted to it. This came at the time when Chinese real estate business Evergrande was in the news.
Another factor that I wrote about was the green energy side of the business called Fortescue Future Industries (FFI).
While it has delivered a strong return in the past 12 months, I'm still expecting big things from Fortescue over the next few years. Here are some reasons why I am still optimistic it can produce market-beating returns.
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Dividends
Fortescue has committed to paying a relatively high dividend payout ratio to shareholders. With a low price-to-earnings (P/E) ratio, this naturally makes the prospective dividend yield higher.
I'm not expecting the next few years of dividends from Fortescue to be as big as FY21. But, it's still large enough to provide good returns.
On CommSec, the business is predicted to pay an annual dividend per share of $1.54 per share in FY23 and $1.15 per share in FY24.
Those projections put the grossed-up dividend yield at almost 13% for FY23 and 9.7% in FY24. This is based on the expectation that the earnings per share (EPS) will fall in that time, suggesting the iron ore price is projected to decline.
Lower Fortescue share price
The Fortescue share price isn't as low as it was 12 months ago. However, it is still down by around 20% since 10 June 2022.
I think a lower valuation brings a more attractive entry point for investors.
Valuations of commodity businesses don't usually move in the same way that a continually growing, structural growth business may do because the revenue and profit don't move in the same way. Sentiment about Fortescue is quite reliant on what's happening with the iron ore price.
However, I think it's worth pointing out that Fortescue is one of the lowest-cost producers of iron ore in the world. If the iron ore price were to fall too far, it would cause smaller iron ore miners to stop producing and therefore affect the supply and demand of iron in the global market.
Fortescue Future Industries
FFI is continuing to make progress with its green energy and decarbonisation efforts.
It has acquired Williams Advanced Engineering (WAE), which gives Fortescue exposure to an advanced battery business that is already making revenue.
FFI has signed a number of customers for its future green hydrogen production, including E.ON and Covestro.
It's making progress with its green projects, and has recently signed an agreement to invest in a business that's looking to build green hydrogen import terminals around the world, including in Germany.
I think FFI can make a lot more progress with its green endeavours, which could unlock value for shareholders as the market realises how close Fortescue is to realising its green hydrogen goals. I think this would be good for the Fortescue share price.
