ASX iron ore shares have been a strong choice for passive income over the last several years. Investors may be wondering if the Fortescue Ltd (ASX: FMG) share price is still an attractive option for passive income in this period – I've been thinking the same thing.
Fortescue has been one of the biggest dividend payers over the last five years thanks to its large profit generation and low price/earnings (P/E) ratio.
The company is one of the largest iron ore miners, but its shorter-term profit is largely reliant on what happens with the iron ore price, which is difficult to predict at the best of times.
Despite that challenge, analysts have estimated how the company's passive income out could play out.
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Forecast dividend
The broker UBS is forecasting significant dividend declines over the next few financial years.
Analysts are predicting that Fortescue's passive income could drop to $1.14 per share in FY25, which translates into a grossed-up dividend yield, including franking credits of approximately 8.25%.
The annual dividend per share is forecast to drop to 97 cents per share in FY26. That means it could pay a grossed-up dividend yield of 7%, including franking credits.
UBS is predicting Fortescue's annual dividend per share could drop to 64 cents in FY27, which would equate to a grossed-up dividend yield of 4.6%, including franking credits.
The dividend could then start rising again in FY28 onwards, according to UBS, but that is quite a few years away.
Is the Fortescue share price a buy?
I'm wary of businesses where the profit and dividend are reducing because there's no guarantee the payout will recover back to former levels. Fortescue is currently very dependent on Chinese iron ore buying for its profit generation. How will the supply and demand relationship change in the coming years?
Fortescue faces the difficulty of rising supply, with Africa poised to be another region of competition.
UBS was impressed by the production in the three months to June 2025, it was stronger than expected, helping deliver a record year of shipments and production costs. Shipments ended near the top of guidance, while costs were below the bottom of guidance. The achieved price for its iron ore was "in line" with expectations while the balance sheet was "strong".
FY26 shipment guidance, at the mid-point, implies growth and "creeping" operating expenditure.
The broker said the Fortescue valuation looks "stretched" based on the forecasts. UBS is forecasting net profit of US$3.5 billion in FY25 and US$3.2 billion in FY26.
Unless there is an expected strengthening of the iron ore price, I don't think Fortescue shares make an appealing buy for passive income right now. If it were to fall, the valuation and dividend yield may become more appealing.
