Why is the Fortescue share price sinking 6% today?

The Fortescue Metals Group Limited (ASX: FMG) share price is starting the week deep in the red.

In morning trade, the iron ore giant’s shares are down 6% to $16.21.

This means the Fortescue share price is now down by 19% since the start of the year.

Why is the Fortescue share price crashing lower today?

Firstly, before you panic about the iron ore price, I can confirm that it has not collapsed. According to Metal Bulletin, it was down approximately 0.6% to US$95.00 a tonne on Friday night.

And while there are admittedly a number of bearish brokers out there, today’s decline by the Fortescue share price has nothing to do with them either.

Today’s weakness has been driven entirely by the company’s shares trading ex-dividend for its upcoming final dividend.

When a share goes ex-dividend it means that the rights to that dividend are now staying with the seller and will not transfer to the buyer. As a result, a company’s shares will usually fall in line with the dividend amount to reflect this.

The Fortescue dividend

A week ago, Fortescue released its full year results and reported record iron ore shipments of 189 million tonnes. However, due to a significant pullback in the price of the steel making ingredient and rising costs, the company’s revenue fell 22% to US$17,390 million and its net profit after tax dropped 40% to US$6,197 million.

In light of this and its Fortescue Future Industries expenditure plans, the company slashed its final dividend by 43% to a fully franked $1.21 per share.

Based on the Fortescue share price at the end of last week, this final dividend alone equated to a 7% dividend yield.

Is this a buying opportunity?

Unfortunately, as popular as Fortescue is with investors, I have only bad news in respect to broker recommendations.

The general consensus is that the Fortescue share price is overvalued and heading lower from here. Not a single broker in my circle has a buy rating on its shares.

Goldman Sachs, which has a sell rating on its shares, has suggested that fair value is all the way down at $12.10.

The post Why is the Fortescue share price sinking 6% today? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• What’s the outlook for Fortescue shares amid a struggling Chinese economy?
• Why are ASX 200 mining shares getting hammered on Friday?
• These ASX 200 shares are going ex-dividend on Monday
• ASX 200 shares declared $42b of dividends in August. Here’s how you can get a slice

Motley Fool contributor James Mickleboro 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 Scott Phillips.

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