The Fortescue Metals Group Limited (ASX: FMG) share price has dropped 12% in the last six months and almost 20% in the five months since 10 June.
Considering the ASX iron ore share has a market capitalisation of more than $50 billion (according to the ASX), the abovementioned declines represent a significant fall in dollar terms.
However, I'm unfazed by what has happened with Fortescue shares so far this year.
As an iron ore miner, it's perhaps unsurprising that the Fortescue share price would drop, considering the iron ore price has also gone backwards.
But, I believe several things could mean that it still has a very promising future.
Green energy plans continue
The key reason why I decided to invest in Fortescue shares was because of its global efforts to decarbonise heavy industrial sectors by producing large quantities of green hydrogen and green ammonia.
Fortescue Future Industries (FFI) can revolutionise the global energy market by producing green energy powered by renewable energy. It has plans to produce 15 million tonnes of green hydrogen annually by 2030 with a global portfolio of production facilities. It will look to keep growing production in the 2040s.
International energy company E.ON has agreed to buy up to 5 million tonnes of this production (a third), along with other, smaller deals.
The first location where green hydrogen and green ammonia could be produced is the Incitec Pivot Ltd (ASX: IPL) Gibson Island ammonia facility. Fortescue and Incitec are progressing with plans. They have started front-end engineering design and executed a framework agreement to govern the project through to a final investment decision.
Fortescue Future Industries continues to grow its number of agreements with different countries that could result in future production facilities being built there. As time goes on, I think this will help support and boost the Fortescue share price.
In the lead-up to Egypt hosting the 2022 United Nations Climate Change Conference (COP27), FFI signed an agreement to conduct studies to develop green hydrogen production in Egypt.
Higher energy prices are also a potential bonus for the business. The more green hydrogen that can be produced, the cheaper the cost will be for clients. With other forms of energy currently at a high cost, it could make green hydrogen more palatable to switch to.
Chinese economic rebound
There is growing talk that China may change to a reopening strategy at some point.
My colleague James Mickleboro reported:
Goldman Sachs' economist Hui Shan believes that the reopening of China is still some way off as "the government still needs to keep its zero-COVID policy until all preparations are done." Goldman expects a reopening in the second quarter of next year.
If and when that happens, it would hopefully be a big boost for the Chinese economy, increase steel demand, and potentially lead to a higher iron ore price. As one of Australia's largest iron ore miners, this would be positive for Fortescue shares.
It's hard to know how much of a boost that would be, but it's entirely possible that China could decide to build more infrastructure, which would likely need a lot of steel.
Dividends to keep flowing
Fortescue's dividend payments depend heavily on how much profit and cash flow it can make. This requires a solid iron ore price to generate good profits.
But, with Fortescue's C1 costs sitting at US$17.69 per wet metric tonne (in the three months to September 2022), there is still plenty of margin for the iron ore miner to make enough profit to pay good dividends, providing a good boost to the total shareholder return statistic.
According to CMC Markets, it's predicted to pay an annual dividend of $1.42 in FY23 and $1.02 in FY24. This translates into forward grossed-up dividend yields of 12% in FY23 and 8.7% in FY24 at the current Fortescue share price.
For me, these dividends alone would be good returns, so I'm happy to hold for dividends in the short term, and green energy is promising for the long term.
