Over the last few years, the Fortescue Metals Group Limited (ASX: FMG) dividend has been among the most popular on the Australian share market.
And it isn't hard to see why. Thanks to booming iron ore prices, the mining giant has been in a position to reward its shareholders handsomely.
However, with iron ore prices softening and the company planning to spend billions of dollars to decarbonise its Pilbara operations, will the Fortescue dividend outlook become ugly?
What is the Fortescue dividend outlook?
According to a note out of Goldman Sachs, its analysts believe the good times will be over for the Fortescue dividend after FY 2023.
After paying a 150 US cents per share dividend in FY 2022, the broker is expecting this to reduce to a relatively attractive 97 US cents (A$1.51) in FY 2023. Based on the current Fortescue share price of $15.50, this will mean a fully franked yield of 9.7%.
However, in FY 2024, Goldman is expecting the company's decarbonisation spending to kick in and lead to a dividend cut to 40 US cents (62 Australian cents). This represents a fully franked 4% dividend yield.
With the company's decarbonisation spending due to go up another level in FY 2025, Goldman expects the Fortescue dividend to drop again. This time the broker is expecting a dividend of 33 US cents (52 Australian cents) for the year. This will mean a yield of 3.35% for investors.
Finally, Goldman Sachs is forecasting the Fortescue dividend to then ease to 32 US cents (50 Australian cents) in both FY 2026 and FY 2027. This will mean a modest 3.2% dividend yield for investors in both years.
In light of this, based on these forecasts, there are two things that could happen to the Fortescue share price. One is that investors accept lower yields and its shares continue to trade at current levels. The other is the Fortescue share price retreats to lower levels in the coming years to maintain its current above-average yield.
Time will tell which happens.
