FMG share price: Dividends to top $27bn in the next decade, MWM

We examine the highlights from the miner’s recent investor day and look at Macquarie Wealth Management’s (MWM) current view on the stock.

Iron ore prices seem near unstoppable right now.

The mainstay commodity continues to rise, with CME’s front-month iron ore futures contract last trading at US$145 per tonne.

Off the back of those bullish price moves, pure play iron ore miner — Fortescue Metals Group (FMG) — has seen its stock surge more than 10% in the last five sessions.

This bullish price action comes after the iron ore giant held its latest investor and media day on December 9, taking the chance to highlight the company’s vision, strategy, growth strategies and recent operational highlights.

On that last point, FMG said during the first quarter of FY21 its shipments had risen 5%, its average realised price hit US$106 per dry metric tonne, while C1 costs came in at an impressive US$12.74 per wet metric tonne.

FMG also went on to stress its multifaceted relationship with China, pointing out that while Chinese steel production has been impacted by the pandemic, global steel production is now recovering, driven by 'strong production in China, and a gradual recovery in rest of world.'

More positively still, FMG said that it expected global steel production to rise in the coming years, despite the expectation that Chinese steel production growth is poised to moderate somewhat.

'Chinese crude steel production forecast to peak during this decade.'

Looking forward, FMG also took the chance to reiterate its fiscal 2021 guidance, noting that it expected:

  • Iron ore shipments of between 175-189 million tonnes
  • C1 costs to come in at between US$13-13.50 per wet metric tonne
  • Capital expenditure to come in at between US$3-3.4 billion

Finally, Fortescue, which has, in recent times become a dividend favourite, reiterated its prioritisation of returning capital to shareholders, citing a dividend policy which remains focused on paying out between 50% to 80% of after-tax profits.

Macquarie eyes a decade of strong dividends

Analysts from Macquarie Wealth Management, who have long held a bullish view on the miner, reiterated their Outperform rating and $23.00 12-month price target following FMG's latest investor day.

Though the investment bank noted FMG's overall production has ramped up strongly between FY10 and FY15, the miner’s Eliwana and Iron Bridge projects could see production capacity rise even further, closer to 200 million tonnes per annum.

From the income side of things, with buoyant iron ore prices continuing to drive strong earnings momentum, Macquarie said:

‘We continue to believe the company will pay dividends at the upper end of its dividend policy.’

‘FMG’s cash flow generation is expected to be strong in FY21, with our forecast free cash flow an dividend yield expected to average 12%.’

Looking further out, with FMG paying out close to US$10 billion in dividends in the prior decade, Macquarie analysts forecast that the iron ore miner will pay out a staggering US$27.3 billion in dividends over the next decade.

The investment bank cited FMG's upcoming Q2 production results – due out on 28 January – as the next price catalyst for the stock.

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