This ASX share in my portfolio has the biggest dividend yield

This stock has been a cash cow for my portfolio.

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Many ASX shares in my portfolio are dividend shares that I believe have solid yields. But, there's one stock with the largest dividend yield. It has been paying big dividends for years, and FY24 could see another major payout.

That company is ASX mining share and iron ore giant Fortescue Ltd (ASX: FMG).

A great thing about iron ore shares is they typically trade on a low price/earnings (P/E) ratio which effectively produces a relatively high dividend yield.

How big is the ASX dividend share's yield?

In the 2023 financial year, Fortescue paid an annual dividend per share of A$1.75, which represented a cut of 15%.

At the current Fortescue share price, the FY23 payout represents a grossed-up dividend yield of around 10%.

It's unlikely that the FY24 dividend per share will be the same as last financial year.

At the moment, the projection on Commsec is that owners of Fortescue shares may receive a dividend per share of $1.39, which would be a grossed-up dividend yield of 7.9%

However, the broker UBS has estimated Fortescue could pay an annual dividend per share of $1.45, which would be a grossed-up dividend yield of 8.2%.

Fortescue's dividend payout ratio policy is to pay out between 50% to 80% of full-year underlying net profit after tax (NPAT).

Could the Fortescue shareholder return be stronger?

The iron ore price has been strengthening, which is great news for Fortescue's monthly profitability.

Over the last few months, the iron price has risen to above US$130 per tonne. It's now able to make much more profit than seven months ago when the iron ore price was below US$110 per tonne.

If the iron ore price were to keep rising and reach US$140 (or even higher), it'd be even better news for the ASX share.

China is doing what it can to stimulate the economy with different announcements. Infrastructure and manufacturing demand may offset the weakness of the residential construction sector.

However, the business is also investing large amounts of cash into its green energy division, so stronger profits could help fund an acceleration in investments in the green hydrogen and battery segments.

Valuation

Using the projection for FY24 on Commsec, the Fortescue share price is valued at under 10x FY24's estimated earnings.

However, I'd wait for the Fortescue share price to fall back before considering an investment after its strong run. I believe an iron ore price under US$100 per tonne would be a better time to look at an ASX iron ore share like this one.

Motley Fool contributor Tristan Harrison has positions in Fortescue. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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