Fortescue Metals Group Ltd (ASX: FMG) shares closed in the green on Friday.
Shares in the S&P/ASX 200 Index (ASX: XJO) iron ore stock ended the week trading for $19.94, up 0.7% for the day.
Longer-term, Fortescue stock is just about flat since this time last year. Though that's not including the two fully franked dividends, totalling $1.10 per share, that Fortescue paid out over the year.
At Friday's closing price, Fortescue shares are trading on a fully franked trailing dividend yield of 5.5%.
Fortescue has enjoyed an exceptionally strong run over the last four months, surging 37% since hitting its recent low on 23 June. This has come amid early signs of a recovery in China's sluggish economic growth. China, as you may know, is the world's top consumer of the industrial metal and Australia's largest export market.
Iron ore prices hit lows of US$93.00 per tonne in early July, with numerous analysts forecasting it would continue lower to trade below US$90 per tonne. But the industrial metal, once again, defied those bearish expectations to march higher instead. On Friday, iron ore was trading for US$105.30 per tonne, according to data from Trading Economics.
Which brings us back to why Fortescue shares could almost double into 2026.
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How Fortescue shares could keep racing higher
Unlike its more diversified rivals, such as BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO), which have both been actively expanding their copper operations, Fortescue remains highly focused on iron ore.
In a new mining report published this week, Macquarie Group Ltd (ASX: MQG) highlighted the material potential upside for Fortescue shares if the current spot price for iron ore holds through 2026.
The broker noted that spot prices for iron ore are 24% higher than its existing estimates for calendar year 2026. And that could make a world of difference to shareholders.
Under its existing estimates, Macquarie has an underperform rating and a $16.50 price target on Fortescue shares. The broker also estimates a fully franked dividend yield of 5.2%.
But under the spot iron ore pricing scenario, Macquarie's price target shoots up to $36.50 a share. That's 83.1% above Friday's closing price. Under the spot scenario, the Fortescue dividend yield also rises to 7.5%.
Risks to Macquarie's pricing assumptions
The future is, by definition, unknown. As such, any price estimates for global commodities, such as iron ore, are just that: estimates.
Commenting on the risks to its base case and spot case assumptions for Fortescue shares, Macquarie cautioned:
Movements in iron ore prices present the most significant upside and downside risks to our earnings forecasts and valuation. Variances in assumptions (production, capex, opex of both core assets, and the Iron Bridge Magnetite Project) versus our base case present material risks both to the upside and downside to earnings forecasts and valuation.
