Fortescue Metals Group Ltd (ASX: FMG) shares have been paying large dividends to investors for the last few years. While the company’s FY23 dividend may not be as big as its FY21 offering, it could still be a hefty dividend payment.
Six months ago, the company announced an interim dividend payment of 75 cents per share. At the current Fortescue share price, that would represent a grossed-up dividend yield of 5.1%.
How big could Fortescue’s FY23 final dividend be?
Estimates on Commsec suggest the business could pay an annual dividend per share of $1.81. That would translate into an annual grossed-up dividend yield of 12.3%. The projection implies Fortescue’s final dividend could be considerably larger than its half-year dividend.
Given Fortescue has already paid an interim dividend per share of 75 cents, it implies that the final dividend per share could be $1.06.
The business has stated that its dividend payout ratio is between 50% to 80% of full-year net profit after tax (NPAT).
The Commsec estimate suggests the business could make earnings per share (EPS) of $2.74.
So, if Fortescue shares had an annual dividend payout ratio of 50%, the annual Fortescue dividend could be $1.37, with the final dividend being a possible payment of 62 cents.
A dividend payout ratio of 80% could translate into an annual dividend per share of $2.19, with the final dividend being a possible $1.44 per share. If it’s as high as that, the grossed-up dividend yield of the final payment would be 9.8%.
However, I don’t think the dividend payout ratio will be as high as 80% because of the various demands on Fortescue’s cash. For starters, its half-year payout ratio was 65%. If that was repeated, the annual payout would be $1.78, very similar to the estimate on Commsec.
Where else is the ASX mining share putting its money?
Fortescue has committed to allocate 10% of its net profit each year to its green energy division where it’s looking to produce green hydrogen, green ammonia, and highperformance batteries.
Fortescue is very optimistic about its ability to produce industrial levels of green hydrogen in the coming years, as well as finding customers for it.
The ASX mining share has also said it intends to commit 10% of net profit to fund other resource growth opportunities.
In its final FY23 quarterly update, the business said it’s planning to spend a total of US$2.8 billion to US$3.2 billion, excluding Fortescue Future Industries (FFI). That includes US$300 million spending on exploration and studies, as well as US$300 million on iron ore projects (including Iron Bridge in the Pilbara).
FFI operating expenditure is going to be between US$400 million to US$500 million, with capital expenditure and investments of approximately US$300 million.
Fortescue Metals Group is due to hand down its FY23 full-year financial results on Monday 28 August.
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