2024 may have been a tough year for Fortescue Ltd (ASX: FMG) shares, but today is a good day to have them in your investment portfolio for a couple of reasons.
One reason is that the mining giant's shares are storming higher on Friday.
At the time of writing, the Fortescue share price is up 4% to $20.20.
Why else is it a good day to own Fortescue shares?
The other reason why it is a good day for shareholders is that today is pay day for them.
Last month, Fortescue released its full year results and reported an 8% increase in revenue to US$18,220 million and an 18% lift in net profit after tax to US$5,664 million. This was driven by an improvement in its average realised iron ore price.
In light of this, the Fortescue board was able to declare a fully franked final dividend of 89 cents per share. This brought its full year dividend to $1.97 per share, which represents a 13% increase on the prior corresponding period.
It is the former that is being paid to shareholders today. Based on yesterday's Fortescue share price, this equates to a dividend yield of approximately 4.5%. Not bad for just a final dividend!
In fact, a $10,000 investment before the ex-dividend date on 5 September would have yielded you approximately $550 in dividends today (based on the share price at the time).
Is it a good time to invest?
Unfortunately, the team at Goldman Sachs thinks investors should be staying clear of Fortescue's shares.
This morning, the broker has reiterated its sell rating and $15.40 price target on the miner's shares. This implies potential downside of more than 20% for investors over the next 12 months.
While there are a number of reasons why Goldman is bearish. One of the main reasons is that it feels that Fortescue shares are significantly overvalued. The broker explains:
Relative valuation vs. BHP & RIO: the stock is trading at a premium to RIO & BHP on our estimates; ~1.2x NAV vs. BHP at ~0.85x NAV and RIO at ~0.75x NAV, ~6x NTM EV/EBITDA (vs. BHP/RIO on ~5.5x/4.5x), and ~1% FCF vs. BHP/RIO on c. 6%/7%. FMG continues to trade at a >10% premium to RIO & BHP on an EV/EBITDA basis, but at a >30% premium on a P/NAV basis, despite being less diversified and having a lower margin and FCF/t iron ore business.
The valuation gap implies >US$10bn of value for hydrogen projects in FMG's share price in our view. To justify this valuation gap, we think FMG would need to build 20 Gibson Island sized projects or 40 Phoenix sized projects globally (assuming >10% IRR) selling green ammonia at >US$1,500/t (including government support).
