If you had to choose between owning Fortescue Ltd (ASX: FMG) shares in 2024 or one of the big four ASX bank stocks like Commonwealth Bank of Australia (ASX: CBA), those who picked the latter would have been vastly better off.
All four of the major ASX 200 bank stocks have soared in value this year so far. CBA has been stealing most of the headlines with its torrent of new record highs.
But Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and ANZ Group Holdings Ltd (ASX: ANZ) have all been exceptional investments as well. Each of these banks has also delivered double-digit gains to investors, with Westpac's 46% rise taking the cake.
In contrast, Fortescue shares have been an awful investment this year. Since the start of 2024, this ASX 200 mining giant's shares have dropped more than 36%, falling from $29.39 each to the $18.74 we see today (at the time of writing anyway).
Just look at how Fortescue's 2024 performance compares to that of Westpac's below:
So, Fortescue and the ASX bank stocks have had dramatically divergent fortunes this year. However, while these gains have been lucrative for existing bank investors, they arguably leave those seeking dividend income with a bit of a quandary.
The ASX banks have long been known as heavy-hitting income shares. However, their galloping share prices have dramatically reduced the dividend yields that investors will start on if they buy a bank today.
Comparing Fortescue shares's dividend yield to the ASX bank stocks
To illustrate, if NAB shares were trading at the same price today as they were at the start of this year, they would be sitting on a dividend yield of 5.48%. Instead, NAB's share price gains over the year have reduced this yield down to 4.34% today.
It's even more conspicuous with CBA. This bank's yield has tanked from 4.09% down to the present 2.93% over this year.
In stark contrast, the yield on Fortescue shares has ballooned, thanks to the miner's sharp share price plunge in 2024. Today, Fortescue shares are sitting on a seemingly massive trailing dividend yield of 10.54%.
This might make the thought of buying Fortescue shares over the banks for income today seem obvious. But is the miner really a better choice for income in 2025 and beyond?
Is a 10% yield too good to be true?
Well, not so fast. A company's trailing yield reflects the past, not the future. There is no guarantee that buying Fortescue shares right now will secure you a 10.54% return on your investment from dividend income going forward. Just as there is no guarantee that CBA shares will yield 2.93%.
Saying that, the ASX banks have a pretty good track record of either maintaining or increasing their dividends over the past few years. The same cannot be said of Fortescue. As a mining company, Fortescue's profitability (and thus ability to pay out dividends) is entirely dependent on the price of iron ore.
As it happens, iron ore has spent most of 2024 falling in value, a trend that many experts believe will continue into 2025. This probably explains why Fortescue shares have also had a rough year.
History has shown the extent to which Fortecue's dividends can dry up when iron ore prices are low. In 2021, this miner forked out an annual total of $3.58 in dividends per share, but just $1.75 per share over 2023. In 2018, investors received just 23 cents per share in dividends.
No one knows what kind of dividends Fortescue will be able to fund in 2025. But if I relied on dividend income from my share portfolio, I would be very careful with betting on big paycheques from this company.
The banks, although undoubtedly expensive right now, have a far better track record of paying out consistent income
