FMG – Macquarie rates the stock as Outperform

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Fortescue’s announced 60c special dividend came as a surprise given typically such announcements are reserved for the result release. The broker calculates 60c represents 80% of second-half earnings using its own (lower) iron ore price forecasts, and the company had flagged a payout ratio of 50-80%.

But, if iron ore prices continue to hold at current levels, the broker can see another special of 20c with the result on an 80% payout.

For the time being Fortescue has paid a fully franked yield of 11%. The broker notes that were iron ore spot prices input into its valuation model, forecasts earnings would rise by 22% and 100% in FY19-20. For now, no changes so Outperform and $8.70 target retained.

Sector: Materials.

Target price is $8.70.Current Price is $8.21. Difference: $0.49 – (brackets indicate current price is over target). If FMG meets the Macquarie target it will return approximately 6% (excluding dividends, fees and charges – negative figures indicate an expected loss).

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