Should Fortescue Metals Group Limited (ASX:FMG) Be Part Of Your Portfolio?
Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Over the past 7 years, Fortescue Metals Group Limited (ASX:FMG) has returned an average of 4.00% per year to shareholders in terms of dividend yield. Let’s dig deeper into whether Fortescue Metals Group should have a place in your portfolio. View our latest analysis for Fortescue Metals Group
Here’s how I find good dividend stocks
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
Is it the top 25% annual dividend yield payer?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has the amount of dividend per share grown over the past?
Does earnings amply cover its dividend payments?
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Fortescue Metals Group fare?
The company currently pays out 57.46% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect FMG’s payout to remain around the same level at 58.37% of its earnings, which leads to a dividend yield of around 6.26%. In addition to this, EPS is forecasted to fall to $0.36 in the upcoming year. If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider Fortescue Metals Group as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Relative to peers, Fortescue Metals Group produces a yield of 7.64%, which is high for Metals and Mining stocks.
Next Steps:
Taking into account the dividend metrics, Fortescue Metals Group ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three relevant factors you should look at:
Future Outlook: What are well-informed industry analysts predicting for FMG’s future growth? Take a look at our free research report of analyst consensus for FMG’s outlook.
Valuation: What is FMG worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether FMG is currently mispriced by the market.
Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
