Owning Fortescue Ltd (ASX: FMG) shares has been a rewarding experience in the last few years because of the dividend payments.
The supportive iron ore price, the generous dividend payout ratio and the low price/earnings (P/E) ratio combined to deliver large dividend yields year after year.
Can this attractive dividend streak continue, or could the rest of the decade be much leaner for Fortescue shareowners? Let's take a look at what one financial institution has forecast for the ASX iron ore share.
FY24 dividend payment for Fortescue shares
We're more than three-quarters through the 2024 financial year, and Fortescue has already paid an interim dividend of A$1.08 per share for FY24.
The iron ore price remaining above US$100 per tonne, is supportive for the company's profitability and its dividend payments. Fortescue had a dividend payout ratio of 65% in the first half of FY24.
The iron ore price has fallen to under US$110 per tonne in the last couple of months, so the second-half dividend may be lower than the first half.
The broker UBS currently projects an annual dividend per share of A$1.89, which translates into a grossed-up dividend yield of 11%.
FY25
If the iron ore price can continue to remain above US$100 per tonne, it could enable Fortescue to generate a strong enough profit to pay a pleasing dividend and invest in its green energy benefits.
According to the estimates from UBS, Fortescue's annual dividend per share is expected to reduce to A$1.47 per share, which translates into a grossed-up dividend yield of 8.6%. That's a pretty good yield considering the Fortescue share price is up more than 10% in the last six months as we can see on the chart below.
FY26
The iron ore price could become challenged in future years if some market commentary is right. We may already have seen the peak iron demand from China, and iron ore production from Africa is expected to rise.
UBS is currently estimating that FY26's net profit could be a third lower than FY24. This could lead to the annual dividend per share being cut to A$1.08 per share – 43% lower than FY24's projected payout. The FY26 full-year payout is projected to be as large as the FY24 interim dividend alone.
An A$1.08 annual dividend per share would translate into a grossed-up dividend yield of 6.3%.
FY27
The FY27 profit and Fortescue dividend could take another hit in FY27, though its green energy efforts will likely be ramping up by that stage.
Broker UBS has projected that owners of Fortescue shares could receive 86 cents per share in the 2027 financial year. If that's correct, it'd translate into a grossed-up dividend yield of 5% at the current Fortescue share.
FY28
The 2028 financial year could be the worst of all of these years based on these estimates from UBS.
FY28 could see Fortescue generate net profit after tax (NPAT) of US$3.77 billion, which is 45% lower than the projected amount for FY24. That could lead to the annual dividend per share dropping to A$0.82, translating into a grossed-up dividend yield of 4.8%.
Foolish takeaway
Analysts have regularly been shown to be too pessimistic about the iron ore price and, therefore, what Fortescue may be able to achieve. Time will tell if these projections are close to reality, but it seems UBS thinks leaner times are ahead.
