Fortescue Metals Group Limited (ASX: FMG) and Santos Ltd (ASX: STO) have been two of the poorest performing stocks in the ASX 200 over the last 12 months. Fortescue's share price has plunged from a high of $5.73 in April 2014 to just $1.96 today, while Santos shares have fallen precipitously from a high of $15.32 in September to just $6.90 today.
China Slowdown
As most shareholders and sharemarket watchers will know, the share price falls have little to do with company performance, but rather to do with the sale price of the iron ore and oil they pull out of the ground. The iron ore price sits below US$60 and the WTI oil price below US$50, up to 60% below their recent peaks.
Risk vs Reward
In addition to being responsible for a severe erosion of shareholder capital, these two companies have a number of attributes in common. Both have high debt levels, both are far from the cheapest producers, and both offer incredible trailing yields.
Santos offers a trailing yield of over 5% fully franked, while Fortescue's 10% fully-franked trailing yield begs the obvious question, what return will shareholders receive this year?
Dividend Duel
A study performed by AMP Limited (ASX: AMP) six months ago found that Fortescue Metals Group was among the top 10 holdings of Australian self-managed super funds, most likely for its impressive dividend yield and lofty profit forecasts. Since then, shareholders have lost over 60% of their capital and face a heavily reduced payout this year.
The average analyst is predicting an 8 cent per share dividend payout from Fortescue, representing a yield of 4% on today's price but just 1.5% on the price just 12 months ago. The payout is expected to fall to 6 cents in 2016.
Santos on the other hand, is expected to perform poorly in the 2015 financial year as trailing oil-price linked contracts results in a 40% fall in profit and an equivalent fall in the dividend payout to around 20 cents per share, or a 3% yield. The difference here is that analysts expect the payout to surge to over 40 cents in 2016, representing a 6% fully-franked yield!
So the question is, with such a heavily reduced yield will SMSFs hold onto their shares or continue to put selling pressure on the stock?
My bet is on the latter, which is why I am resolved to invest ONLY Foolishly in the future.
