The S&P/ASX 200 Index (ASX: XJO) dividend share Fortescue Metals Group Limited (ASX: FMG) has been one of the biggest dividend payers on the ASX — and indeed the world.
Fortescue has been making significant profit over the last few years and paying big dividends. But the latest half-year dividend was the smallest interim dividend per share since 2019.
Last year, Fortescue was one of the top 10 biggest dividend payers in the world. Also on the list in 2021 were Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP).
But in 2022, the Janus Henderson Group (ASX: JHG) Global Dividend Index report noted that "lower commodity prices…meant mining payouts fell from their record 2021 high point".
The report also said, "2023 dividends are unlikely to repeat the sharp increases of 2022, as oil prices have moderated and mining payouts are likely to fall further."
Fortescue announced in the first half of FY23, net profit after tax (NPAT) dropped 15% to US$2.37 billion, while the ASX 200 dividend share's earnings per share (EPS) declined by 14% to 77 US cents. Fortescue's interim dividend declined 13% to 75 Australian cents.
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Is the Fortescue dividend going to get worse?
The Fortescue profit is highly influenced by the iron ore price. Sometimes it can be hard to gauge which way the iron ore price is heading, or how long it will stay where it is.
In the middle of last year, there were forecasts the iron ore price was going to drift lower to 2024. While the future is unknown, the iron ore price remains in the US$120s per tonne, defying the negativity.
The current price enables Fortescue to generate a sizeable amount of profit while also helping its decarbonisation and Fortescue Future Industries (FFI) efforts.
Looking at the forecasts on Commsec, the dividend is predicted to decrease from here.
The full-year dividend for the 2023 financial year is expected to be $1.55 per share. This would translate to a grossed-up dividend yield of 9.7%.
In FY24, the annual dividend per share could then fall almost 25% to $1.17. This would represent a grossed-up dividend yield of 7.35%.
FY25 could then see another dividend cut of 26% to 86.6 cents per share. If that were to happen, it would be a grossed-up dividend yield of 5.4%.
However, profit and dividend estimates could change in the future if the iron ore price is stronger (or weaker) than currently forecast.
Fortescue share price snapshot
Since the beginning of 2023, the iron ore miner has risen by 11.6%.
