FMG, a holding in the Momentum Strategy, reported a result today that was never going to be much of a surprise given the regular production and cost updates it provides, but the market was definitely keeping a close eye on the final dividend and the company did not disappoint.
FMG has declared a final dividend of $1.00 per share fully franked, bringing total financial year dividends to $1.76 per share fully franked (or $2.51 in gross dividends). At today’s trading price of $18.40, the stock is trading on a gross dividend yield of 13.6% which is the highest of the blue chips by some margin. With earnings per share (net profit after tax per share) of $2.29, the P/E multiple of 8 times is among the lowest among the blue chips despite the incredible performance of the business.
What continues to hold back FMG’s valuation among the analyst community is the reversion to lower long-term iron ore prices from the current price of $US127 per tonne in most analysts’ modelling of the stock. However, analysts have been completely behind the eight ball on the iron ore price with most estimates being upgraded well behind the real price and it is pretty clear that the longer the iron ore price remains elevated the more FMG could be re-rated further. And for the time being, the demand/supply dynamics of the iron ore price remain favourable, so our hope remains that FMG continues to perform.
In the meantime, the iron ore price has started the new financial year at higher prices than FMG received throughout FY20 so its margins at the moment are at record highs, with record production and shipments expected this year. So, for the time being shareholders can get used to the incredible dividend flow which will de-risk our holding as time goes on. And with an entry price of $12.05 at the beginning of May, members are sitting on unrealised profits for FMG of over 50%.
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