Why is the Fortescue share price sinking 8% today?

There are a couple of reasons why Fortescue shares are taking a beating on Monday

James Mickleboro

Author Bio James Mickleboro is an investment writer and analyst who has worked with The Motley Fool Australia for 10 years, covering ASX shares, market news, broker research, dividends, growth stocks, and long-term investing ideas. Over that time, James has written extensively about Australian equities and developed a particular focus on helping everyday investors understand the stories behind share price moves, company announcements, broker views, and broader market trends. His best investment recommendation was identifying Afterpay while it was still a small-cap growth share, before its rise into one of Australia’s biggest technology success stories. His worst investment lesson came from CSL Ltd (ASX: CSL), where he was burnt by believing management could turn the business around sooner than the market ultimately allowed. Areas of Expertise ASX shares Growth and dividend investing Broker research Interpreting company announcements Market news Portfolio strategy Long-term wealth creation Education Bachelor of Politics, Philosophy and Economics. CFA Institute Social Media LinkedIn Favorite Investment Quote "It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price." — Warren Buffett

Published February 27, 2023 10:57 am AEDT

The Fortescue Metals Group Ltd (ASX: FMG) share price is having a day to forget on Monday.

In morning trade, the iron ore miner's shares are down a sizeable 8% to $20.60.

This compares to a 0.8% decline by the benchmark S&P/ASX 200 Index (ASX: XJO).

A woman holds her hands to the side of her face as she sits back in shock at something she is reading or seeing on her computer screen. — Image source: Getty Images

Why is the Fortescue share price being sold off?

There are a couple of catalysts for the poor performance of the Fortescue share price on Monday.

The first is broad weakness in the resources sector, which has seen fellow miners BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) fall approximately 2% today. This appears to have been driven by a pullback in the price of commodities on Friday evening.

However, the main reason for the Fortescue share price decline has been the company's upcoming dividend payment.

Going ex-dividend

This morning, Fortescue has traded ex-dividend for its fully franked interim dividend of A$0.75 per share.

When a share trades ex-dividend, it means that the rights to an upcoming dividend payment are now with the owners or sellers of its shares and new buyers won't receive it. In light of this, a share price will tend to fall in line with the dividend to reflect this fact.

In addition, sometimes a share will fall even more than its dividend payment if some shareholders were planning to wait for the ex-dividend date before closing their positions.

This could explain why the Fortescue share price is falling significantly more than the value of its upcoming dividend payment today. After all, with the Fortescue dividend tipped to reduce materially in the coming years, some income investors may believe that now is the time to get out.

Whether you sold out or not today, those that are eligible can look forward to receiving this 75 cents per share dividend next month on 29 March.

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