Fortescue Ltd (ASX: FMG) has built one of the world's largest iron ore businesses and remains a popular choice among ASX income investors.
The company continues to produce enormous volumes at relatively low costs, while its dividends can be substantial when iron ore conditions are favourable.
With Fortescue shares trading around $18.19, would I buy them in August?
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The core business remains strong
Fortescue continues to perform well operationally.
The company shipped a record 201.3 million tonnes of iron ore in FY26, passing 200 million tonnes for the first time. Its hematite operations also remained highly competitive, with costs of US$18.74 per wet metric tonne.
I think this shows why Fortescue has become such a successful miner. Its scale and low-cost position allow it to generate significant cash flow when iron ore prices are supportive.
The balance sheet also remains in reasonable shape, with Fortescue ending June with US$5.1 billion in cash and net debt of US$800 million. This provides some financial flexibility for dividends, investment, and the development of future projects.
Iron Bridge could eventually add more higher-grade iron ore to the company's product mix. Shipments increased during FY26, although the project's slower ramp-up and recent impairment show that the path has been more difficult than originally expected.
Fortescue is still an excellent iron ore operator. My hesitation comes from what analysts currently expect its earnings to look like over the next few years.
The outlook is becoming less attractive
According to CommSec, consensus earnings per share estimates stand at $1.76 in FY26, $1.38 in FY27, and 97.5 cents in FY28.
This expected decline changes how I view the current share price.
At around $18.19, Fortescue is trading on approximately 10 times forecast FY26 earnings. That multiple rises to around 13 times in FY27 and almost 19 times in FY28 if the share price remains unchanged.
The dividend forecasts follow the same direction.
Consensus estimates are for Fortescue to pay fully franked dividends of $1.21 per share in FY26, 88.6 cents in FY27, and 60.3 cents in FY28.
Those estimates imply forecast dividend yields of approximately 6.7%, 4.9%, and 3.3%, respectively.
The FY26 income remains attractive, but the later forecasts suggest shareholders may receive considerably less over the following two years.
This is worth highlighting because dividends have historically been one of the main reasons investors have owned Fortescue shares. A decline in earnings could potentially lead to a de-rating in its share price.
Why I prefer BHP and Rio Tinto shares
Fortescue's earnings remain closely tied to iron ore.
The company has ambitions outside its traditional operations, but these businesses are yet to provide the same level of earnings diversification as the portfolios of its larger rivals.
BHP Group Ltd (ASX: BHP) has substantial exposure to copper and is developing its Jansen potash project alongside its iron ore operations.
Rio Tinto Ltd (ASX: RIO) also earns money from copper, aluminium, and other commodities. I think this broader mix gives both miners more ways to grow and reduces their reliance on a single commodity.
Fortescue could still perform strongly if iron ore prices remain supportive. But for a long-term mining investment, I currently prefer the wider opportunity sets available through BHP and Rio Tinto.
Foolish takeaway
My verdict on Fortescue shares is a hold.
The company remains a high-quality iron ore producer with strong assets and the capacity to pay substantial dividends. The falling earnings and dividend forecasts make me cautious about buying at around $18.19.
I would be comfortable continuing to hold Fortescue shares, but I would direct new money towards BHP or Rio Tinto shares in August.
