Hydrogen

Will Fortescue (ASX: FMG) shares truly pay an 18% dividend yield in FY21?

At the current share rate, Fortescue Metals Group Limited (ASX: FMG) is predicted by some analysts to pay a grossed-up dividend yield of 18% in FY21.

The large iron mining service simply reported its FY21 half-year result that included a dividend of $1.47 per share. That dividend alone totals up to a grossed-up yield of 8.4% from Fortescue. But there are analysts out there that think there might be another big dividend with the annual report in 6 months.

But before we get to that, let’& rsquo; s take a look at what Fortescue simply

reported. Fortescue & rsquo; s half-year result In the six months to 31

December 2020, Fortescue sold 90.2 Mt of iron ore, which was 3 %greater than the previous matching duration. The realised rate of that ore leapt 42% to US$ 114 per dry metric tonne( dmt ). The greater iron ore cost and increased volume sold led to Fortescue & rsquo; s profits increasing by 44 %to US$ 9.3 billion. With the advantage of greater costs and an ongoing focus on cost management through performance and development, Fortescue had the ability to increase its hidden revenues before interest, tax, devaluation and amortisation(EBITDA )margin by 6 percentage points to 71%. This helped underlying EBTIDA rise by 57%to US$ 6.6 billion. Net profit after tax (NPAT) rose by 66%to US$ 4.08 billion. Looking at incomes per share (EPS)in Australian dollar terms,

it rose by 58% to$1.84. Running cashflow grew by 42%to US$ 4.4 billion and complimentary cashflow increased 12%to US$ 2.5 billion. Fortescue & rsquo; s net financial obligation is down to just US$

110 million, below US$ 258 million at 30 June 2020. The gross debt still stands at US$ 4.1 billion and the cash balance is US$ 4 billion. Whilst the$1.47 dividend per share stated by the board represented a payment ratio of 80%of net revenue, it also stated what it & rsquo; s going

to do with the other 20%. It has established Fortescue Future Industries(FFI)to determine jobs in the eco-friendly energy and green hydrogen sectors. Projects have actually been recognized in both

Australia and internationally. Fortescue said it & rsquo; s going to utilize its effective performance history of determining, examining, and developing large-scale resource and facilities chances.

The business said it’will bring its demonstrated capability of embracing innovation and innovation to make sure future green energy projects will position Fortescue at the leading edge of this emerging industry. The business will allocate 10 %of its net profit to money renewable resource development with FFI. The other 10%will fund other resource growth opportunities. Is that big dividend yield possible? It depends which projections you take a look at. Commsec has approximated that Fortescue can produce EPS of$3.61 per share in FY21, which it will pay a yearly dividend per share of$

3.10. That would correspond to the grossed-up dividend yield of almost 18 %. Broker Morgans has actually formerly estimated that Fortescue could pay an even bigger dividend, of around $3.31 per share, with EPS of $4.14 for FY21. But broker Macquarie Group Ltd( ASX: MQG)doesn & rsquo; t believe that the Fortescue dividend will be as huge as the above price quotes, with a predicted FY21 dividend per share of$ 2.04. That & rsquo;d be a grossed-up dividend yield of 11.7 %, which is still materially above

10%.

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