Owning Fortescue Ltd (ASX: FMG) shares has been very rewarding over the past few years when it comes to dividends.
In FY24, the business paid an annual dividend per share of $1.97. That trailing dividend translates into a grossed-up (including franking credits) dividend yield of 14.4% at the current Fortescue share price.
In FY23, the company paid an annual dividend per share of $1.75. The 2023 financial year payout translates into a grossed-up yield of 12.8%.
If Fortescue were to pay another sizeable dividend in FY25, then the ASX mining share could deliver another double-digit return in just dividends for investors.
But, how likely is it that the ASX iron ore stock will be able to keep delivering large payments? Let's consider the situation…
Solid iron ore price today
As a commodity business, Fortescue shares are heavily reliant on what happens with the iron ore price — its key resource.
According to Trading Economics, the iron ore price has stabilised above $105 after the Chinese central bank decreased its benchmark lending rates to record lows, which has improved the demand outlook for the world's biggest steel consumer.
The People's Bank of China lowered its one-year and five-year loan prime rates by 25 basis points (0.25%) to 3.1% and 3.6%, respectively. A lower mortgage rate could help lessen the financial pressure of Chinese household mortgages and potentially increase home buying.
It was also reported that the People's Bank of China recently made moves to support China's share market, and also said that it could lower banks' reserve requirements again before 2024 ends.
Trading Economics highlighted that recent data from China has been encouraging. In the three months to September 2024, China's economy grew faster than expected, but it was still the slowest pace since the first quarter of 2023. Other positives were that Chinese sales, industrial production and fixed asset investments in September were better than expected.
Can owners of Fortescue shares receive big dividends?
The iron ore price is unpredictable, but if Fortescue's mining profits remain high, then it could continue to fund large shareholder payments in the next 12 months as well as fund its other initiatives such as green energy (including green hydrogen).
However, Fortescue is forecast to see lower profits in the next few years.
Broker UBS is currently forecasting that Fortescue could see large dividend declines in the next few financial years.
Currently, the broker suggests Fortescue could pay a dividend per share of 90 cents in FY25, which would result in a grossed-up dividend yield of 6.6% and represent a cut of more than half.
Another cut could happen in FY26, with suggestions the Fortescue dividend could decline to 79 cents per share, representing a grossed-up dividend yield of 5.8%.
Then, in FY27, Fortescue's dividend per share could be reduced further to 68 cents per share. That would mean the grossed-up dividend yield is just 5%.
Investors should be aware that if analyst predictions come true, Fortescue shareholders may be facing lower dividends for the next few years. Dividends are not guaranteed, so income-focused investors should be wary of this.
Of course, if the iron ore price soars then Fortescue could positively surprise investors.
