Dividend darling becomes disappointment: What happened to Fortescue shares?

Fortescue Metals Group Limited (ASX: FMG) shares used to be an S&P/ASX 200 Index (ASX: XJO) dividend favourite.

Indeed, the stock was trading with a whopping 19.6% trailing dividend yield this time last year. However, that figure has plunged alongside its 2022 offerings.

Fortescue shares provided investors with $3.58 in dividends last year. This year, they’ve handed out just $2.07 apiece – leaving the stock with a 9.6% yield.

Indeed, the iron ore giant’s dwindling dividends were the biggest impact driving Australia’s total offerings 13% lower last quarter, according to the latest Janus Henderson Global Dividend Index. Let’s take a look at what’s been going wrong.

Fortescue shares disappoint dividend fans

This year has likely been a rough one for dividend-focused Fortescue shareholders.

The company was the world’s fourth-largest dividend payer in the September quarter of 2022. Fast forward 12 months and it has slipped to unlucky number 13.

The biggest impact driving down its dividends? Lower metals prices.

As an iron ore producer, the company’s bottom line is nearly entirely dependent on the steelmaking ingredient’s value. Unfortunately, that tumbled last financial year.

The miner posted an average realised iron ore price of US$99.80 per dry metric tonne over the 12 months ended 30 June. That was down from US$135.32 over the previous 12 months.

As a result, Fortescue’s basic earnings per share (EPS) slumped 38% to $2.77. As dividends are generally paid out of a company’s profits, falling earnings likely caused it to drop its payouts by 42% year on year.

Silver lining?

It’s important to note there is, of course, a silver lining to the stock’s dividend debacle. Its yield has not only been weighed down by its smaller offerings, but also its rising share price.

The Fortescue share price has gained 17% over the last 12 months to trade at $21.44 today.

For comparison, the S&P/ASX 200 Index (ASX: XJO) has fallen 2% in that time while the S&P/ASX 200 Materials Index (ASX: XMJ) has lifted 14%.

The post Dividend darling becomes disappointment: What happened to Fortescue shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper 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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