Why the Fortescue (ASX:FMG) share price is sinking 5% today

Here's why the Fortescue Metals Group Limited (ASX:FMG) share price is under pressure on Monday and could have fallen into the buy zone.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The worst performer on the S&P/ASX 200 Index (ASX: XJO) on Monday has been the Fortescue Metals Group Limited (ASX: FMG) share price.

In afternoon trade, the iron ore producer's shares are down 5% to $19.01.

This latest decline means the Fortescue share price is now down 28% from the record high it reached in January.

Why is the Fortescue share price tumbling lower today?

Investors have been selling Fortescue shares on Monday after another pullback in the iron ore price.

According to CommSec, the iron ore price fell by a further US$5.80 a tonne or 3.5% to US$160.20 a tonne on Friday night. This was reportedly driven by news that Chinese regulators will restrict output for some steel mills in Tangshan until the end of 2021.

As Tangshan is China's largest steel-producing city, investors appear concerned that demand will soften meaningfully and weigh on the iron ore price.

Is this a buying opportunity?

One broker that sees a lot of value in the Fortescue share price is Macquarie.

This morning the broker retained its outperform rating and $25.50 price target on the mining giant's shares.

Based on the current Fortescue share price, this price target implies potential upside of 34% over the next 12 months.

Macquarie's recommendation follows Fortescue's US$1.5 billion note offering last week. As well as repaying its 2022 Senior Unsecured Notes, the broker expects the funds to support its Iron Bridge plans. This will allow it to maintain a high dividend payout ratio.

What about dividends?

In light of the above, Macquarie is forecasting dividends of $2.88 per share and $1.92 per share over the next two financial years.

This will mean very generous dividend yields of 15.1% and 10.1%, respectively, in FY 2021 and FY 2022.

Based on the former and Macquarie's price target, Fortescue's shares could provide investors with a stunning total return of almost 50% over the next 12 months.

Motley Fool contributor James Mickleboro 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 Bruce Jackson.

More on Share Fallers

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Block, Computershare, South32, and Strickland Metals shares are falling today

These shares are starting the week in the red. But why?

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

Why Imricor, Ora Banda, Ventia, and Vulcan shares are dropping today

These shares are ending the week in the red. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why CSL, Imricor, Jumbo, and Netwealth shares are falling today

These shares are under pressure on Thursday. But why?

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Share Fallers

Guess which ASX 200 stock is crashing 42% on big news

Big bad news is weighing heavily on this stock today.

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Share Fallers

Why Beetaloo, Botanix, Cobram Estate, and Origin Energy shares are falling today

These shares are having a poor session on Tuesday. But why?

Read more »

Bored man sitting at his desk with his laptop.
Share Fallers

Why Antipa Minerals, Northern Star, Pilbara Minerals, and Synlait Milk shares are falling today

These shares are starting the week in the red. But why?

Read more »

a man weraing a suit sits nervously at his laptop computer biting into his clenched hand with nerves, and perhaps fear.
Share Fallers

Why Evolution Mining, G8 Education, Lottery Corp, and Lynas shares are tumbling today

These shares are ending the week in the red. But why?

Read more »

Two men in hard hats and high visibility jackets look together at a laptop screen at a mine site.
Gold

Down 50% in a year, time to pounce on this beaten-down ASX 200 gold stock?

A leading expert offers his verdict on this beaten-down ASX 200 gold miner.

Read more »