As was expected, Fortescue Metals Group (FMG) has joined in the dividend surge in the current reporting season, especially from the resources sector.
Rivals such as BHP Billiton (BHP) and Rio Tinto (RIO), plus Arrium (ARI) have surprised with larger than expected dividend increases (and in Arrium’s case a tripling) because of a sharp improvement in profits from iron ore.
Yesterday Fortescue said it would pay an interim dividend of 10 cents a share, equal to the payout for all of the 2012-13 financial year and almost double market estimates.
The higher than expected half-year payout that will see around $103 million flow to its biggest shareholder, Andrew ‘Twiggy’ Forrest.
The dividend came as Fortescue reported a $US1.71 billion net profit for first half, 259% above the weak result for the December, 2012 half year of $US478 million, when iron ore prices plunged to a low of just under $US87 a tonne and Fortescue’s future wobbled amid market concerns it may not survive the slump.
So tough was Fortescue’s position that it didn’t pay an interim dividend for the 2013-13 year as it tried to conserve cash.
Since then the company has slashed costs, boosted cash flows and paid down debt and revamped operations and assets.
Higher than expected iron ore prices in the six months to last December also helped the company, as did higher production and a plunge in costs per tonne.
FMG vs BHP 1Y – Stronger for longer iron ore sees FMG nearly double interim dividend after profit surges
Fortescue said yesterday it was keeping its full year iron ore export guidance at 127 million tonnes, despite weather delays over the past seven weeks (which caused the original target to be downgraded slightly in January, from up to 133 million tonnes).
Fortescue chief executive Nev Power warned last month that heavy rainfall through January could interrupt production and shipments.
The company said it had reduced net debt to $US8.6 billion by December 31, from $US10.5 billion in the middle of last year.
Cashflow jumped to $US3.6 billion from just $US500 million in the first half of the prior fiscal year.
Of course, the higher profit and dividend wasn’t enough for the greedy analysts and investors and the shares fell 2.3% to $5.84.
