The Fortescue Ltd (ASX: FMG) share price has seen plenty of volatility in recent months. Sometimes, valuation declines can prove to be buy-the-dip opportunities for brave investors.
There are certainly negatives surrounding the ASX mining share giant, such as uncertainty caused by the US tariffs on the Chinese economy.
But, I'm going to focus on the positives about the business and why it could be attractive at the current Fortescue share price.
Let's get into why investors may be justified in feeling optimistic about the ASX iron ore share.
Image source: Getty Images
Lower valuation
As the chart below shows, the Fortescue share price has fallen 21% from 10 December 2024.
ASX iron ore shares strike me as very cyclical, so it can be usefully opportunistic to jump on a miner when market confidence is low.
Looking at the forecast on Commsec, the Fortescue share price is valued at 11x FY25's estimated earnings. I think that's an appealing price-earnings (P/E) ratio for the miner.
China could perform better than expected
Virtually all of Fortescue's earnings come from selling iron ore to China, so demand from the Asina country is integral for the ASX mining share.
Pleasingly, for miners, the iron ore price has remained solid enough for Fortescue to continue making good returns. According to Trading Economics, the iron ore price currently sits at around US$100 per tonne.
I think a lot of the market pessimism surrounding the business relates to US tariffs and the flow-on effect that could impact the Chinese economy. However, the fact that the US administration recently reduced the Chinese tariff rate to 30% was a boost.
According to the Australian Financial Review, one ex-Trump administration official, Anthony Scaramucci, thinks the US will have to reduce tariffs on China to below 10%. If that happened, the outlook for the Chinese economy (and Fortescue shares) would improve further, in my view.
Compelling dividends?
In the last few years, Fortescue has been known for paying large dividends to shareholders.
The company's board of directors usually decides on the size of the dividend based on a dividend payout ratio – how much of its profit it pays out to investors.
In the FY25 half-year result, the business decided on a dividend payout ratio of 65%. So, its upcoming profit generation will be integral for how large the payout will be.
According to the projection on Commsec, it could pay a grossed-up dividend yield of 8.6%, including franking credits, in FY25 and then 7.1% in FY26. These would be pleasing levels of passive income during a low point of projected earnings.
