Here's why the Fortescue share price was crushed in September

Fortescue's shares were hit hard in September. Here's why…

| More on:
Man with his head in his head because of falling share price.

Image source: Getty Images

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

It was a tough month for the Fortescue Metals Group Limited (ASX: FMG) share price in September.

During the period, the mining giant's shares lost almost 9% of their value.

This means the Fortescue share price is now down 22% over the last six months.

Why did the Fortescue share price sink in September?

There were a few catalysts for the weakness in the Fortescue share price last month.

The first was the company's shares trading ex-dividend for its fully franked final dividend of $1.21 per share. This dividend was then paid at the end of last month on 29 September.

Another was the broad market weakness driven by global recession concerns.

Finally, also weighing on the Fortescue share price was the unveiling of the company's decarbonisation plans.

Decarbonisation comes at a huge cost

Last month Fortescue announced that it intends to spend US$6.2 billion or A$9.2 million to decarbonise its Pilbara operations.

This investment includes the deployment of an additional 2-3 GW of renewable energy generation and battery storage and the estimated incremental costs associated with a green mining fleet and locomotives.

Fortescue expects net operating cost savings of US$818 million per annum from 2030 with a payback of capital by 2034.

However, a growing number of analysts believe that this will inevitably lead to sizeable dividend cuts from the mining giant in the coming years. And with Fortescue's shares popular with income investors, some appear to have been dumping them because of this.

Goldman Sachs, for example, commented:

Today's announcement and commitment underpins our view that FMG is at an inflection point on capital allocation, and to fund the ambitious decarb strategy, we assume the dividend payout ratio falls from the current 75% to 50% from FY24 onwards.

Goldman is now forecasting fully franked dividends per share of 81 US cents in FY 2023, 37 US cents in FY 2024, and then 31 US cents in FY 2025. Based on the current Fortescue share price and exchange rates, this will mean yields of 7.2%, 3.2%, and 2.7%, respectively.

The broker also sees plenty of downside risk for its shares. It has a sell rating and $12.10 price target on them.

Motley Fool contributor James Mickleboro 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.

More on Materials Shares

Man in yellow hard hat looks through binoculars as man in white hard hat stands behind him and points.
Materials Shares

Rio Tinto shares on watch after naming new CEO

The mining giant has found its new leader.

Read more »

Three miners looking at a tablet.
Materials Shares

How much upside does Macquarie project for South32 shares?

The miner faces more headwinds, but the broker maintains its optimism.

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Materials Shares

Why are South32 shares sinking 5% today?

Let's see what is weighing heavily on this mining giant's shares today.

Read more »

A male sharemarket analyst sits at his desk looking intently at his laptop with two other monitors next to him showing stock price movements
Materials Shares

How much upside does Macquarie forecast for Pilbara Minerals shares?

Is the broker bullish or bearish on this lithium giant? Let's find out.

Read more »

Group of miners working at a coal mine with one smiling and holding up a piece of coal.
Materials Shares

How much upside does Macquarie project for South32 shares?

Is this miner's luck about to change?

Read more »

A group of miners in hard hats sitting in a mine chatting on a break as ASX coal shares perform well today
Materials Shares

Down but not out: Can these ASX mining shares bounce back?

Here’s what one broker is predicting for Australia’s largest mining companies. 

Read more »

Broker analysing the share price.
Materials Shares

Buy, hold, or sell? Broker's verdict on 3 ASX 200 materials shares

Materials was one of four market sectors that weakened in overall value in FY25.

Read more »

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

Why is this ASX mining stock crashing 14% today?

Let's see what is causing investors to hit the sell button on Monday.

Read more »