This ASX share in my portfolio has the biggest dividend yield

This stock has been a cash cow for my portfolio.

| More on:
A retiree relaxing in the pool and giving a thumbs up.

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

Many ASX shares in my portfolio are dividend shares that I believe have solid yields. But, there's one stock with the largest dividend yield. It has been paying big dividends for years, and FY24 could see another major payout.

That company is ASX mining share and iron ore giant Fortescue Ltd (ASX: FMG).

A great thing about iron ore shares is they typically trade on a low price/earnings (P/E) ratio which effectively produces a relatively high dividend yield.

How big is the ASX dividend share's yield?

In the 2023 financial year, Fortescue paid an annual dividend per share of A$1.75, which represented a cut of 15%.

At the current Fortescue share price, the FY23 payout represents a grossed-up dividend yield of around 10%.

It's unlikely that the FY24 dividend per share will be the same as last financial year.

At the moment, the projection on Commsec is that owners of Fortescue shares may receive a dividend per share of $1.39, which would be a grossed-up dividend yield of 7.9%

However, the broker UBS has estimated Fortescue could pay an annual dividend per share of $1.45, which would be a grossed-up dividend yield of 8.2%.

Fortescue's dividend payout ratio policy is to pay out between 50% to 80% of full-year underlying net profit after tax (NPAT).

Could the Fortescue shareholder return be stronger?

The iron ore price has been strengthening, which is great news for Fortescue's monthly profitability.

Over the last few months, the iron price has risen to above US$130 per tonne. It's now able to make much more profit than seven months ago when the iron ore price was below US$110 per tonne.

If the iron ore price were to keep rising and reach US$140 (or even higher), it'd be even better news for the ASX share.

China is doing what it can to stimulate the economy with different announcements. Infrastructure and manufacturing demand may offset the weakness of the residential construction sector.

However, the business is also investing large amounts of cash into its green energy division, so stronger profits could help fund an acceleration in investments in the green hydrogen and battery segments.

Valuation

Using the projection for FY24 on Commsec, the Fortescue share price is valued at under 10x FY24's estimated earnings.

However, I'd wait for the Fortescue share price to fall back before considering an investment after its strong run. I believe an iron ore price under US$100 per tonne would be a better time to look at an ASX iron ore share like this one.

Motley Fool contributor Tristan Harrison has positions in Fortescue. 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 Opinions

Happy miner giving ok sign in front of a mine.
Opinions

Which ASX 200 stock offers 'material upside' amid continuing uncertainty over US tariffs?

Blackwattle Investment has identified one ASX 200 large-cap stock that is thriving on the uncertainty.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Financial Shares

2 rising ASX financial shares with 'meaningful upside' still left: fundie

Financials outperformed every other sector in FY25, but there are still buying opportunities left, say these experts.

Read more »

A businessman hugs his computer and smiles.
Opinions

If I could only own one ASX 200 share for the rest of my life, it'd be this one

This is one stock I expect to own forever.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Brokers rerate 3 leading ASX 200 tech stocks

Experts reveal their ratings on the ASX 200 tech sector's three biggest companies.

Read more »

Person holding a blue chip.
Opinions

Buy alert! 2 ASX 200 blue-chip shares worth a look now: expert

Dylan Evans from Catapult Wealth has identified two blue-chip shares that he thinks are good buys today.

Read more »

Two happy woman on a couch looking at a tablet.
Opinions

Why I'm excited to see the results of these ASX 200 shares

These stocks could reveal very interesting insights.

Read more »

Young male investor smiling looking at laptop as the share price of ASX ETF CRYP goes higher today
Opinions

Why I just bought this 5.2%-yielding ASX dividend stock and plan to buy even more

This business is one of my favourites for dividends and total returns.

Read more »

A young female investor with brown curly hair and wearing a yellow top and glasses sits at her desk using her calculator to work out how much her ASX dividend shares will pay this year
Opinions

Why I'm still investing in ASX shares during tariff uncertainty

There are a few reasons why I plan to continue investing even during uncertainty.

Read more »