FMG share price in focus
Fortescue Ltd, founded in 2003 and headquartered in Perth, is a leading iron ore production and exploration company with assets located in the Pilbara region of Western Australia.
The company primarily focuses on iron ore production, shipping over 190 million tonnes annually. In addition to its iron ore operations, Fortescue has been expanding its exploration efforts across Australia, Argentina, Chile, Brazil, and Kazakhstan, targeting key materials such as copper, rare earths, and lithium.
This expansion aligns with the company’s long-term strategy to capitalise on the growing demand for these resources, driven by the global shift to renewable energy. Fortescue aims to meet the increasing need for copper, lithium, and other rare earths in the coming years.
The appeal of Resources shares
The S&P/ASX200 Materials Index (ASX: XMJ) has averaged 4.51% per year in capital growth over the last 5 years. That compares to the ASX 200 index which has returned 4.66% per year over the same period. Let’s take a look at why you might want a materials company like FMG in your portfolio.
Big dividends
While the capital growth goes through good periods, it’s really the dividends that most investors are interested in when assessing resource shares. After all, it’s what they’ve been known for for many years. Over the last 5 years the FMG dividend yield has averaged 10.52% per year.
Aussie materials companies like FMG have developed a good reputation of being reliable dividend payers. However, these are still commodity-driven businesses so the dividends (like the share price) can fluctuate quite a bit.
Growth potential
Mining is one of the backbones of our modern economy and the demand for things like iron ore, copper, and lithium is not going away any time soon.
In fact, the demand for a lot of precious metals is rapidly growing as the economy transitions to renewable energy. A lot of these materials are needed for things like electric car batteries and solar panels. Companies like BHP and Rio Tinto are investing a lot of money to put themselves at the forefront of this oncoming wave of demand.
FMG share price valuation
One way to have a ‘quick read’ of where the FMG share price is would be to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a shareholder, but it can fluctuate year-to-year or between payments. Currently, Fortescue Ltd shares have a dividend yield of around 10.07%, compared to its 5-year average of 10.52%. Put simply, FMG shares are trading below their historical average dividend yield.
Be careful how you interpret this information though – it could mean that dividends have fallen, or that the share price is increasing. In the case of FMG, last year’s dividend was greater than the 3-year average, so the dividend has been growing.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the FMG share price.
