The Fortescue Metals Group Limited (ASX: FMG) dividend is a popular option for income-seeking investors.
And it isn't hard to see why, given the tens of billions of dollars of dividends that the mining giant has dished out to its shareholders in recent years.
For example, in FY 2022, Fortescue paid a fully franked A$3.58 per share dividend, which represents total dividends of US$6.7 billion.
But will the big dividends be sticking around? Let's take a look at what one leading broker is expecting from the iron ore miner.
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Fortescue dividend forecast
According to a note out of Morgans this week, its analysts believe the Fortescue dividend has peaked and is now on a rapid descent. This is due largely to the company's Fortescue Future Industries business and its decarbonisation plans.
After polluting the world for a couple of decades, Fortescue is now aiming to help the environment. But this will come at a significant cost and weigh on its free cash flow. Morgans commented:
Significant capex is still to come from FMG's decarbonisation spend and various projects targeting FID in CY23. FMG expects to fund this spending through its iron ore cash flow, which sees its FCF yield reducing significantly over the next few years, and increasing its sensitivity to any unexpected market volatility.
Morgans is expecting this to lead to the miner paying a 92.9 US cents (129.9 Australian cents) per share fully franked dividend in FY 2023. Based on the current Fortescue share price of $22.39, this will mean a 5.8% dividend yield.
Looking to FY 2024, Morgans expects the Fortescue dividend to almost halve to 54.8 US cents (76.7 Australian cents) per share. This equates to a fully franked dividend yield of 3.4% for investors.
Unfortunately, the broker expects things to get even worse in FY 2025 and has pencilled in a 22.2 US cents (31 Australian cents) per share dividend that year. This would mean a paltry yield of 1.4%.
In light of this bleak dividend forecast, it will come as little surprise to learn that Morgans has the equivalent of a sell rating on Fortescue's shares.
It currently has a reduce rating with a $15.60 price target, which implies potential downside of approximately 30%.
