Fortescue Metals Group Limited (ASX:FMG): Dividend Is Coming In 2 Days, Should You Buy?

Attention dividend hunters! Fortescue Metals Group Limited (ASX:FMG) will be distributing its dividend of US$0.12 per share on the 02 October 2018, and will start trading ex-dividend in 2 days time on the 31 August 2018. Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let’s take a look at Fortescue Metals Group’s most recent financial data to examine its dividend characteristics in more detail.

See our latest analysis for Fortescue Metals Group

5 questions I ask before picking a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is their annual yield among the top 25% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has it increased its dividend per share amount over the past?

• Is is able to pay the current rate of dividends from its earnings?

• Will it have the ability to keep paying its dividends going forward?

ASX:FMG Historical Dividend Yield August 28th 18

Does Fortescue Metals Group pass our checks?

Fortescue Metals Group has a trailing twelve-month payout ratio of 60.2%, which means that the dividend is covered by earnings. Going forward, analysts expect FMG’s payout to remain around the same level at 57.5% of its earnings, which leads to a dividend yield of 6.5%. Moreover, EPS should increase to $0.30.

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. Unfortunately, it is really too early to view Fortescue Metals Group as a dividend investment. It has only been consistently paying dividends for 8 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, Fortescue Metals Group generates a yield of 5.8%, 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 recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three essential factors you should further examine:

1. 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.

2. 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.

3. 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.