The Fortescue Metals Group Limited (ASX: FMG) share price was on form on Tuesday and pushed higher again.
The iron ore producer’s shares climbed over 1% to reach a record high of $15.56.
This latest gain means the Fortescue share price is now up a massive 44% since the start of the year.
As a comparison, the S&P/ASX 200 Index (ASX: XJO) is down 11% over the same period.
Why did the Fortescue share price hit a record high?
Investors were buying Fortescue’s shares on Tuesday after the iron ore price jumped higher again.
The good news for shareholders is that the price of the steel making ingredient has continued its rise overnight. According to CommSec, the spot iron ore price rose a further 0.5% to a lofty US$112.40 a tonne.
The strong rise in the iron ore price this year has been driven by supply disruptions in Brazil and stronger than expected demand in China. The latter is been caused by the Chinese government’s efforts to boost economic growth after the pandemic.
How profitable is Fortescue?
With iron ore prices at these sky high levels, Fortescue’s Pilbara-based operations are now extremely profitable.
For example, during the third quarter, Fortescue shipped 42.3 million tonnes of iron ore at a cost of US$13.27 per wet metric tonne.
And while Fortescue’s iron ore doesn’t command the full spot price due to its lower (but improving) grades, it is still generating material free cash flows.
Is it too late to invest?
While I have a preference for BHP Group Ltd (ASX: BHP) due to its diversified operations and growth opportunities, I still feel Fortescue could be a good option even after its strong rise this year.
Especially if you’re an income investor. Given the strength of its balance sheet and the high level of free cash flow it is generating, I expect Fortescue to reward shareholders with bumper dividends this year and next.
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More reading
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- Macquarie picks ASX stocks that can deliver positive earnings surprises next month
- Is the gold price too high for investing in ASX gold shares?
- Why the Fortescue share price rallied over 40% to a record high in 2020
- 3 ASX shares with incredible cost moats
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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