The Fortescue Ltd (ASX: FMG) share price has certainly seen its ups and downs in the last year or two. But its reputation for passive income has remained.
ASX iron ore shares usually trade on a low price-earnings (P/E) ratio, which can help unlock a high dividend yield. Providing a generous dividend payout ratio can also lead to a strong dividend yield.
Income-seekers would probably like to have a high level of cash flow in their bank accounts each year. Hence, let's examine what Fortescue shares could offer investors.
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Latest dividend payments
A key input for Fortescue's profitability is the iron ore price. Its mining costs don't typically change month to month or even year to year. So, changes in how much Fortescue gets for its production can make a big difference – a rise in revenue can largely add straight onto the net profit, while a reduction in revenue largely digs into its net profit.
The last two dividends from the business total $1.39 per share. At the current Fortescue share price, that translates into a fully franked dividend yield of 9.3% and a grossed-up dividend yield of 13.3%, including franking credits.
However, past dividends are not a guarantee of future dividend payments.
With how volatile iron ore prices have been, including a recent reduction to below US$95 per tonne according to Trading Economics, future dividends may not be as large.
Passive income predictions
Analysts are currently forecasting that Fortescue's net profit could decrease in FY25 and drop further in FY26.
For example, in the 2025 financial year, the forecast on Commsec suggests an annual dividend per share of 98.5 cents. At the current Fortescue share price, that translates into a FY25 fully franked dividend yield of 6.6% and a grossed-up dividend yield of 9.5%, including franking credits.
Unfortunately, according to Commsec, the annual dividend per share is projected to decline to 79.5 cents. That means in FY26, it could be a fully franked dividend yield of 5.4% and a grossed-up dividend yield of 7.7%, including franking credits.
In my view, Fortescue is not a business we can rely on for consistent dividend payments. However, after falling more than 8% in a month and 32% in a year, I think it's possible the business could provide sizeable dividend income for new investors at the current Fortescue share price. But, there's more to an investment than just the dividend income. Does the overall investment make sense?
It could be a brave contrarian buy, but because of the wide range of potential scenarios, it's not the sort of bet I'd make today with any new investment money for my own portfolio.
