Owners of Fortescue Ltd (ASX: FMG) shares recently learned what their next dividend payment will be.
It's a sizeable one, though not as big as the payments earlier this decade.
Investors will receive a FY26 final dividend of 46 cents per share – that's a reduction of 23% compared to the final dividend of FY25.
The full-year payout comes to $1.08 per share, which is 2% lower than the annual payment for FY25.
Both FY25 and FY26 had a dividend payout ratio of 65%, so the ASX mining share was consistent with how much cash it paid to investors.
Sadly for shareholders, it was partly a change in foreign exchange rates that led to the lower annual dividend. Underlying earnings per share (EPS) in Australian dollars declined 2%, but the underlying EPS grew 3% in American dollar terms. However, the dividend is based on and paid in Australian dollars.
Let's look at what the potential payment for owners of Fortescue shares could be in FY27 and FY28.
Image source: Getty Images
FY27
We're already more than a month and a half into the 2027 financial year and the iron ore price has declined by a few dollars per tonne, which is a headwind for Fortescue's earnings if that decline sticks around.
During FY26, Fortescue saw the sold price of its iron ore increase by 7%, which was the biggest contributor to its underlying earnings increase in FY26 in American dollar terms.
The current forecast on Commsec suggests that the company's FY27 annual dividend per Fortescue share could decline to 86.4 cents. At the time of writing, that translates into a dividend yield of 4.8% excluding franking credits and 6.9% including franking credits.
As you may have guessed, the dividend is projected to decline because the earnings are forecast to decrease. For now, that's just a projection. The iron ore price could surprise the market positively, or it could decline towards US$90 per tonne as analysts have projected could happen amid rising iron ore shipments from Africa.
If supply rises without a lift in demand, it is likely to hurt the commodity price. But analysts have been wrong before about being overly negative about the iron ore price.
FY28
The current forecast on Commsec suggests that the dividend could become even smaller in the 2028 financial year. The pressure on the iron ore price could become stronger as the months go by because Simandou – a huge, new iron ore project in Africa – is expected to ramp-up in the next few years.
Interestingly, Fortescue is working on its own project in Africa (Gabon), though it's not remotely the same scale.
I think the best move that Fortescue can do to grow earnings in the long-term is to continue efforts to grow earnings in areas other than iron ore, such as copper and energy.
The projection on Commsec suggests the company could pay an annual dividend per Fortescue share in FY28 of 59.8 cents. That suggests a dividend yield of 3.3% excluding franking credits and 4.75% including franking credits, at the time of writing.
At this stage, it doesn't seem that Fortescue is the right pick for large or growing income in the medium-term, so I'd look at other ASX shares.
