Owning Fortescue Ltd (ASX: FMG) shares over the last several years has delivered significant passive income. I'm sure shareholders are hoping that the company continues to deliver large dividends.
It was easy for the company to deliver a double-digit dividend yield a few years ago because the iron ore price was high enough for the company to generate huge profits and pay large dividends, while still having a low price/earnings (P/E) ratio as iron ore miners usually do because of their uncertain earnings.
We're now seeing that uncertainty be justified because earnings growth looks challenged in FY27.
However, when share prices fall, it can significantly boost the prospective dividend yield. For example, if a business has a dividend yield of 5% and the share price falls, the dividend yield becomes 5.5%. If it falls 30%, the 5% dividend yield becomes 6.5%.
At the time of writing, the Fortescue share price has declined 34% since the start of the year, giving the dividend yield a boost for prospective investors. Has it fallen enough to unlock a large dividend yield? Time will tell.
Before knowing what a $20,000 investment could do, we should look at what owning Fortescue shares could do.
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Fortescue dividend projection
According to CMC Invest, shareholders need to prepare for a lower dividend in the 2027 financial year.
The forecast suggests that owners of Fortescue shares could receive 47.1 cents per share. At the time of writing, that translates into a dividend yield of 3.25% excluding franking credits and 4.6% including franking credits. The ASX mining share's yield is not what it used to be.
Fortescue typically pays for its dividends based on a dividend payout ratio, which relies on the net profit generation.
At the moment, Fortescue is warning of ongoing negotiations with China Mineral Resources Group (CMRG), a key Chinese buyer of iron ore.
In its FY27 first quarter update, the business reported that C1 unit (production) costs increased 21% year-over-year, while the realised (sold) price decreased 10% year-over-year. That's a painful mix for profitability.
But, that dynamic is why the Fortescue share price has fallen as far as it has. Some investors may be hoping for a stronger dividend yield than what's predicted.
What investing $20,000 in the ASX mining share could mean
At the time of writing, if someone were to invest $20,000 into Fortescue shares, they could afford 1,379 shares.
Owning that much of Fortescue, and assuming the forecast dividend become reality, it would translate into dividend cash of $649.51 and grossed-up dividend income of $927.87 including franking credits.
At this stage, the ASX mining share doesn't appeal to me if I were an income investor. I'd consider other ideas instead.
