It’s fair to say that Fortescue Ltd (ASX: FMG) shares have had a fairly rough year in 2024 so far. Since the beginning of January, the Fortescue share price has lost a chunky 23.14% of its value, dropping from around $29.39 to the $22.59 we see today.
That doesn’t look great against the performance of the S&P/ASX 200 Index (ASX: XJO), which has risen by 4.87% over the same period.
But whilst this has no doubt been painful for Fortescue investors to endure, it has done wonders for the ASX 200 iron ore giant’s dividend yield.
Right now, Fortescue shares are trading on a whopping trailing dividend yield of 9.21%.
If we consider that Fortescue’s dividend payments usually come with full franking credits attached, this yield grosses up to an even more impressive 13.16% with the value of that full franking included.
So, is that all that needs to be said? Does Fortescue’s 9.21% dividend yield make this stock a screaming buy today? Let’s break it down.
Are Fortescue shares a screaming buy for that 9.2% dividend yield?
Well, to start off with, that massive dividend yield is no joke.
It comes from Fortescue’s two most recent dividend payments. The first was the miner’s final dividend of $1 per share, which we saw doled out in September last year. The second was the interim dividend of $1.08 per share, which was paid out in March.
As we mentioned above, both of these payments came fully franked. Together, they give Fortescue shares that 9.21% yield we see today.
However, just because Fortescue has coughed up that amount over the past 12 months doesn’t mean it will continue to do so going forward.
No company is ever under any kind of obligation to keep its dividends at the levels they were in the previous year. Indeed, as a miner, Fortescue’s dividends are even less reliable than those of most other ASX shares.
Any company’s ability to pay out dividends depends on its profitability from year to year. As Fortescue is completely reliant on the global price of iron ore for its own profits, its dividends are fundamentally unstable.
We can see this play out if we look back at the company’s past dividend payments. While the dividends that shareholders have enjoyed over the past 12 months are still substantial, Fortescue’s raw dividends have been volatile for years.
For example, over the 2021 calendar year, the company paid investors $3.58 in dividends per share. But just two years earlier, the annual total was a far less impressive $1.14.
Foolish takeaway
So long story short, it would be naive to buy Fortescue shares today with the expectation of receiving a 9%-plus yield going forward.
Saying that, I would still happily buy Fortescue today for its dividend income potential. This is one of the best-run iron ore miners on the ASX, with a very low-cost base for extracting and processing its ore.
When iron prices are low, the dividends may slow. But over the long term, I think investors can expect a lot of income from this company.
So, if maximising income was a primary goal of my investing strategy, I would happily buy Fortescue shares today as part of a diversified dividend portfolio.
The post Is the 9.2% dividend yield on Fortescue shares too tempting to pass up? appeared first on The Motley Fool Australia.
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Motley Fool contributor Sebastian Bowen 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.
