Fortescue Metals Group Ltd (ASX: FMG) shares are known for paying large passive income to investors.
The ASX mining share usually trades on a low price/earnings (P/E) ratio and has a relatively high dividend payout ratio.
In the FY23 first half, its fully franked interim dividend payment was 75 cents per share, which was 65% of net profit after tax (NPAT), amounting to a total payout to shareholders of A$2.3 billion.
It continues to trade on a low P/E ratio with what its expected earnings are for FY23 and FY24.
According to Commsec, it's valued at 8 times FY23's estimated earnings and under 11 times FY24's estimated earnings.
How big is the dividend going to be in FY24?
It's just a guess at this stage, but the first passive dividend income to be paid during FY24 is going to be the FY23 final dividend.
Commsec estimates suggest that the total FY23 annual dividend will be $1.83 per share, implying the final dividend could be $1.08 per share, which would be a grossed-up dividend yield of 7% by itself.
Then, in FY24, Commsec estimates suggest that the FY24 annual dividend payment could be $1.29 per share, which would be a grossed-up dividend yield of 8.4%.
How much passive dividend income could a $20,000 investment in Fortescue shares pay?
Investing $20,000 would enable an investor to buy 909 Fortescue shares.
For the final FY23 dividend, this would result in a cash payment of around $982 and franking credits of approximately $421.
With the annual payment projected for FY24, the cash payment could be around $1,172 with franking credits of another $502.
Over the next 15 months, investors could get over $2,000 of cash and close to $900 of franking credits.
Getting around $3,000 of grossed-up passive income is exciting from a $20,000 investment, it's a very solid return.
Foolish takeaway
Fortescue is known for paying big dividends to investors and this could continue to be the case in the medium term. Iron ore profit could continue to be strong as Chinese steel exports ramp up to Africa and Asia. Time will tell what happens with the iron ore price and how much supply and demand there is for the commodity in the coming years.
