The Fortescue Metals Group Ltd (ASX: FMG) share price has been drifting lower over the last month, so that makes me think about whether the ASX mining share is now better value and the dividend yield is too good to miss.
Over the past month, Fortescue shares have dropped by around 10%, as we can see in the chart below.
Typically, the large ASX iron ore shares like Fortescue and BHP Group Ltd (ASX: BHP) trade on a low price/earnings (p/e) ratio which helps enable a high dividend yield.
With the Fortescue share price dropping in recent weeks, this is pushing up the prospective Fortescue dividends.
What's going on?
The iron ore price is an integral part of the picture for ASX iron ore shares.
It costs a miner roughly the same amount each month to mine 1 million tonnes of iron ore. So, an increase in the commodity price and revenue also largely boosts the net profit. But, a reduction in the resource price obviously hurts the net profit, which can have a flow-on effect on the Fortescue share price.
What we've been seeing is a fall in the iron ore price in the last few weeks from more than US$120 per tonne to around US$100 per tonne. Fortescue's monthly profitability has therefore been cut quite a bit.
The past few years have shown how cyclical the trading environment can be for iron miners. Demand from China is usually unpredictable, and who knows what the next 12 months and beyond hold?
Long-term looks promising
China has developed enormously as a country over the past three decades, and I think its demand for iron ore will be strong enough to ensure that the iron ore price remains at a healthy level for Fortescue to keep making a decent profit and cash flow.
I like Fortescue's move to open the higher-grade iron ore project Iron Bridge which is now operational, as this diversifies and grows Fortescue's product offering for customers.
I'm very confident about the company's future when it comes to the green energy goal of making large quantities of green hydrogen to decarbonise heavy machinery, boats and perhaps planes.
Those green plans may come with a large price tag. However, Fortescue has a number of different ways to pay for this, including allocating some of its net profit after tax (NPAT) each year to Future Fortescue Industries (FFI), possibly bringing sovereign wealth funds on board and potentially receiving some government funding.
Is the Fortescue share price a buy for the dividend yield?
Using the estimates on Commsec, Fortescue is projected to pay a grossed-up dividend yield of 13.3% in FY23 and 9.1% in FY24.
For most companies, a dividend yield of more than 9% is a very high dividend yield, so that could be a solid cash return for shareholders over the next 12 months.
The Fortescue share price is now cheaper than it was, which is better for potential buyers, though an even lower price would be even more attractive, of course.
For me, Fortescue has appealing long-term plans and could pay attractive dividends, at least in the shorter term. I'd be happy to buy a few shares today, though I'd load up if the Fortescue share price fell below $17.
