Fortescue Ltd (ASX: FMG) has underperformed from a total shareholder return point of view over the past year, with a return of negative 0.9% over the period.
Shareholders can take some heart from the strong dividend yield the company is paying however, with data from the ASX showing a trailing dividend yield of 6.78%.
The question is, will that be maintained?
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How are the numbers stacking up for Fortescue?
Analysts have plenty to work with, with Fortescue recently reporting its full-year production results.
The company said at the end of July that it had shipped 52.7 million tonnes of iron ore for the fourth quarter, to bring the full-year result to a record 201.3 million tonnes.
Fortescue said it kept its costs within guidance, and was paid US$91 per tonne for ore in FY26.
The company is expecting to ship 197 to 207 million tonnes of ore this financial year.
Fortescue Metals and Operations Chief Executive Officer Dino Otranto said of the result:
Breaking through 200 million tonnes of shipments for the first time is a significant achievement and a credit to every person across the business. Results like this don't happen by accident. They reflect our Values in action and an unwavering focus on safer, more efficient operations. That discipline delivered unit costs within market guidance despite ongoing inflationary pressures.
So given that the company is expecting to ship a similar amount of ore this year, will it be able to maintain its dividend?
Fortescue to struggle to maintain dividend payouts
The analyst team at Morgan Stanley don't think so, saying that the company's costs are forecast to reset 13% higher.
They said:
FY27 C1 guidance of US$20.50-21.75/wmt was about 7.8% above Visible Alpha consensus at the midpoint and about 13% above FY26, or about 8.5% higher adjusting for … foreign exchange impact, with the balance from higher diesel, wages, and inflation. We think the cost reset is also consistent with rising work index across hematite operations, including longer haul distances, likely increasing absolute diesel consumption.
Morgan Stanley is predicting earnings per share to fall 45% year on year.
They said re the dividend:
Our dividend forecast falls from 112.9 cents per share in FY26 to 60.6 cents per share in FY27, implying about 3.3% FY27 yield at 65% payout. Although FMG maintains a healthy balance sheet, with Gross debt/ EBITDA of 0.7x (vs. company 2.0x target limit) and Gross gearing of 22% (40% limit), borrowing to fund dividends appears likely.
Morgan Stanley is forecasting a dividend yield of 3.3% in FY27 and 3.9% in FY28.
The company is expected to pay a 5.9% yield for the full year, including the dividend soon to be announced in the full-year result.
This means a $10,000 investment would deliver a $590 return over the full financial year just past.
For the current financial year, if Morgan Stanley's forecast is correct, this figure will drop to $330.
Morgan Stanley also says Fortescue's share price value looks demanding, and has a price target of $15.55 on the company compared to $18.03 at the time of writing.
Fortescue is valued at $55.4 billion.
