Everyone is talking about Fortescue Metals Group Limited (ASX: FMG) shares right now. The Aussie iron ore miner has had a volatile year on the markets but now boasts a more than healthy dividend yield.
Income-minded investors might be wondering what the ASX resources share could bring in terms of passive income.
Can Fortescue shares deliver long-term passive income?
Shares in the Aussie iron ore giant have slumped 36.5% lower year to date to $15.75 per share. That steep share price decline, coupled with bumper iron prices throughout FY2021, have helped propel Fortescue’s dividend yield higher.
In fact, the iron ore miner’s shares are trading at a 22.7% yield right now. Perhaps even more surprisingly, Fortescue is trading at a price to earnings (P/E) ratio of just 3.45.
Investors can sometimes fall into the trap of chasing the hottest stock of the day and extrapolating its success to future earnings.
However, calculating passive income based on boom and bust resources shares can be a risky business. Fortescue shares look so attractive right now because of the recent doubling of its dividends compounded by the recent share price declines.
That means investors need to be looking at more than just chasing dividends for long-term stability. It’s a common misnomer that ASX dividend shares are more stable or better for delivering long-term passive income than selling shares.
However, while Fortescue shares might be paying a handy dividend in FY2021, there’s no guarantee this will continue into FY2022. Investors planning long-term passive income streams may not be so keen on volatility in resources shares like Fortescue.
But that’s not to say that resources shares don’t have a place in well-diversified portfolios. Many investors like the upside that a company like Fortescue can bring when the good times are rolling.
Fortescue shares are trading at a monster dividend yield right now. However, it’s worth noting that’s due to the dual impacts of a falling share price amid concerns over China’s steel production caps coupled with strong recent iron ore pricing.
Should you invest $1,000 in Fortescue right now?
Before you consider Fortescue, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Fortescue wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
*Returns as of August 16th 2021
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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