Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Fortescue to fund solar manufacturing
The renewable and green energy segment of Fortescue Metals Group Limited (ASX: FMG) has bought a 60% stake in a Dutch based energy technology company.
Fortescue has ambitious 100% green energy targets. Fortescue Future Industries (FFI) is the dedicated segment of Fortescue’s business tasked with bringing this goal into reality.
FFI has made tangible progress, achieving initial targets in multiple areas. One of its main targets is the goal of 15 million tonnes of green hydrogen globally by 2030.
Earlier this week Fortescue also announced a target for net zero Scope 3 emissions by 2040.
FFI buys 60% stake in Dutch energy tech company
FFI said that it has acquired a 60% stake in High yield Energy Technologies Group (HyET). FFI said that this acquisition is an important milestone in the company’s vision to produce affordable green hydrogen.
Management said that this acquisition builds on its commitment to develop technologies needed to tackle emissions and global warming.
FFI has also provided the majority of financing for the expansion of HyET’s Dutch Solar PV factory.
The other shareholders of HyET have agreed to work on other current and future HyET activities.
FFI Chief Executive Officer Julie Shuttleworth said: “FFI’s goal is to become the world’s leading, fully renewable energy and green products company. We have commenced the design study for a 1GW Powerfoil factory in Australia and at this scale, we aim to rapidly drive costs down at a greater rate than is achievable with conventional Solar PV technology.”
Environment focus
Fortescue Chairman and FFI Founder Dr Andrew Forrest is a driving force in advocating for environmental change across the business world. He is also not shy of impact investing, with his private investment group Tattarang having a strong set of values.
Commenting on the stake in HyET, Dr Forrest said:
“Green energies need to be available at an industrial, global scale. We don’t have time to wait, we have to act now. The technologies of the HyET companies will help us to reach that tipping point and the world will begin the journey in earnest to become zero-carbon.”
Does the current Fortescue Metals Group Limited (ASX: FMG) share price really offer a dividend yield of 36%?
Let’s think about how that yield is being calculated.
Over the last 12 months, Fortescue has paid dividends that amount to $3.58 over FY21. That’s a huge payout and amounts to a fully franked dividend yield of 25% at the latest Fortescue share price.
Then the franking credits can be added to the yield, thanks to Australia’s generous taxation system that tries to ensure people aren’t taxed twice on the same profit a company makes.
Including the franking credits, the Fortescue dividend yield from FY21 is 36%. Amazing, right?
FY22 expectations
I don’t think the Fortescue dividend in FY22 is going to be as big as FY21.
Fortescue has committed to paying around 80% of its net profit as a dividend to shareholders, re-investing the rest into other parts of the business.
If the profit falls, the dividend is seemingly going to fall.
No-one knows what Fortescue’s FY22 profit is going to be. But I can tell you that the iron ore price has fallen by roughly half over the last few months because of a few key reasons. That seriously harms the profit potential because Fortescue has to just take whatever price it can get for the iron ore it produces.
Analysts have had their best shot at estimating what Fortescue is going to achieve in FY22. The estimates are varied.
Morgan Stanley (a broker) reckons that, at the current Fortescue share price, it is going to pay a dividend of $2.13 per share in the current financial year, which translates to a yield of 15%, or 21.5% with the franking credits.
Whereas CommSec numbers currently suggest a dividend of $3.39 per share in FY22, which translates to a fully franked dividend yield of 23.9%.
My thoughts on the Fortescue share price and dividend
I think the FY22 dividend is going to be closer to the Morgan Stanley estimate than the CommSec one, but whatever it is, it’s likely to be a very big yield for FY22 at this lower share price.
Whilst I wouldn’t buy a business just for the dividend, it seems that the risks for new investors are a bit lower now that the iron ore price has fallen back to a ‘normal’ level. Fortescue could fall a bit lower than here, but it has already dropped 46% from the peak at the end of July 2021, so I don’t think it’s going to fall that much further when you look at the iron ore miner experience around 2016 as an example.
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