Fortescue Metals Group Limited (ASX: FMG) shares are the only mining investment I have in my portfolio. I decided to go for the company over BHP Group Ltd (ASX: BHP).
Some readers may think there is not much difference between the two businesses.
They are both enormous iron ore miners producing many millions of tonnes of the commodity. Both of them rely on a good iron ore price to generate strong net profit after tax (NPAT) and cash flow.
I actually like BHP because of the diversification of its commodity portfolio and the future-focused actions it's taking with exposure to commodities such as potash and copper.
However, there were two key reasons why I went for Fortescue shares over BHP.
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Fortescue Future Industries (FFI)
For me, there was one main reason why I decided Fortescue would be a good addition to my portfolio.
The world will have to spend a lot of money if it's going to decarbonise, lower emissions, and reach net zero by 2050.
Some areas of the economy are already decarbonising, as can be seen with the uptake of electric vehicles. But, there are some more difficult sections such as boats, planes, and heavy industrial vehicles.
FFI believes it has the answer – green hydrogen and green ammonia. Using these two fuel types, and producing them using renewable energy, could help decarbonise those energy-intensive segments of the economy.
To do this, FFI is looking to create a portfolio of green hydrogen production centres around the world, in places like Australia, New Zealand, the Kingdom of Jordan, Canada, and so on.
It's also planning to build a portfolio of green energy manufacturing centres that will make various components needed for its plans, such as the electrolysers that will generate hydrogen from water.
FFI is also involved with other projects such as advanced batteries and renewable energy.
Fortescue Future Industries has managed to sign on some big customers that want to buy a lot of its future green hydrogen production, such as Europen electricity giant E.ON.
If the world is to stay decarbonised, then I think there will be a permanent shift to green fuel. If FFI can become a major player in the green hydrogen space, then it could be a good boost for the Fortescue share price and earnings.
Dividend payer
Fortescue has been one of the biggest dividend payers in the S&P/ASX 200 Index (ASX: XJO) over the last few years.
I'm not expecting the next three years of dividends to be as large as the last three. Net profit and dividends are dependent on what happens with the iron ore price. I have used times of weakness in the iron ore price to buy Fortescue shares at a cheaper price and get access to FFI for better value.
However, Fortescue is committed to paying a sizeable amount of its profit to shareholders each year.
Morgans, a broker that is negative on the company's medium-term prospects, still thinks that Fortescue is going to pay a grossed-up dividend yield of 10% at the current Fortescue share price.
Expansion into other commodities
While it doesn't form an important part of my investment thesis, Fortescue is looking for other commodities in various countries that could help its green plans.
Lithium is one of the main resources it's searching for, but it hasn't found anything substantial yet. It is also looking for copper in various locations, such as Kazakhstan.
