Next week, the latest Fortescue Metals Group Ltd (ASX: FMG) dividend will be paid to eligible shareholders.
When the mining giant released its half-year results last month, it reported a 4.7% decline in net profit after tax to US$2.37 billion. This was driven by weaker iron ore prices, which offset record half-year iron ore shipments.
In light of its softer profits, the Fortescue board elected to cut its interim dividend by 12.8% to 75 Australian cents per share. It is this dividend that will be hitting shareholder bank accounts next Wednesday.
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What's next for the Fortescue dividend?
According to a note out of Goldman Sachs, it expects strengthening iron ore prices to be supportive of a bigger final dividend.
The broker expects a full-year fully franked dividend of US$1.18 (A$1.76) per share in FY 2023. This implies a final dividend of A$1.01 per share.
And based on the current Fortescue share price of $20.93, this equates a generous 8.4% dividend yield for investors.
What about FY 2024?
Unfortunately, it appears that the good times could soon be coming to an end for the Fortescue dividend due to its decarbonisation plans.
With Fortescue planning to spend billions on its Fortescue Future Industries business, this is expected to eat into its free cash flow and put pressure on its dividend payments.
For example, Goldman Sachs expects the Fortescue dividend to more than halve in FY 2024 to 62 US cents (93 Australian cents) per share. This will mean a more modest fully franked yield of 4.4% for investors if Goldman's forecast proves accurate.
It is partly because of this that Goldman Sachs currently has a sell rating and $15.50 price target on its shares. This suggests potential downside of 26% over the next 12 months.
