The Fortescue Metals Group Ltd (ASX: FMG) share price managed to outperform the S&P/ASX 200 Index (ASX: XJO) in September. In this article, we're going to look at what may have impacted the ASX mining share.
Fortescue shares fell 2.4% in September, while the ASX 200 dropped 3.5%.
As one of the largest iron ore miners in the world, changes in the iron ore price can have a major impact on the company's short-term profitability prospects.
Before we get to iron ore, let's look at another factor that could have played its part.
Dividend
Fortescue has built a reputation for paying large dividends for shareholders, partly due to a generous dividend payout ratio and a low price/earnings (P/E) ratio.
When the company declared its FY23 final dividend, the board decided to send $1 per share to shareholders.
There's an important date called the ex-dividend which is the date when new investors are not entitled to the upcoming dividend – there has to be a cut-off somewhere. In theory, Fortescue shares are worth a little less on (and after) the ex-dividend date because the shares don't come with the value of the dividend.
With the fact that Fortescue shares went ex-dividend on 4 September 2023 and the dividend was paid on 28 September 2023, it'd be understandable for the Fortescue share price to fall by $1, yet it only dropped around 50 cents. That's surprising considering the ASX 200 fell 3.5% in the month. So, if it weren't for the dividend, Fortescue shares could have risen.
Iron ore price
A change in the commodity price could have a significant impact on the profitability of the business and also affect the Fortescue share price.
We don't usually see much of a variance in the costs of a business each month, so a sizeable change in the commodity price can add to its monthly profit. But, a fall in the revenue would hurt the net profit.
According to Trading Economics, the iron ore price went from around US$117.50 per tonne at the start of September and finished at approximately US$119.50 per tonne. This slight increase helps Fortescue generate more profitability and also continues to defy expectations that the iron ore price is going to sink below US$95 any month now.
The longer that the iron ore price remains above US$110, the more profit the miner can generate to invest in its green energy endeavours as well as paying generous dividends.
While the real estate construction sector is suffering in China, the demand for iron may be supported by other areas such as electric vehicles.
Fortescue share price snapshot
Since the start of 2023, Fortescue shares have risen by 1.6%, while the ASX 200 is down by 0.04%.
