Fortescue special dividend delivers $1bn payday for Andrew Forrest
Twiggy will pocket another $654m after FMG surprised the ASX with a special payout.
Fortescue Metals Group has delivered a 60c a share special dividend as part of plans to return surplus cash to shareholders ahead of an expected Labor victory at the weekend’s Federal election, delivering a massive $654 million payout to chairman Andrew Forrest. Adding the $327m he collected in February and the $124.5m he raked in last August puts Mr Forrest on the receiving end of over $1.1bn in dividends this financial year.
Labor has promised changes to Australia’s franking credits regime and Fortescue (FMG) said in February — when it also declared a special dividend — that Labor’s plans to crack down on franking credit rebates were part of the thinking behind its decision.
The latest 60c a share payout, to be delivered on June 14, will hand a massive $654m windfall to Fortescue chairman Andrew Forrest and his family, on top of the $327m paid out at the company’s half-year results in February.
In total the company will hand over a total of $1.85bn to shareholders in this special payout.
Cash has been pouring into Fortescue’s coffers since the beginning of the year as supply problems in Brazil and the Pilbara pushed up prices of iron ore. The benchmark price of the steelmaking commodity has surged from $US72 a tonne at the start of the year to hover at about $US95 a tonne for most of the last month.
At the same time, Fortescue has said its own realised prices for its lower grade ore have also surged 47 per cent.
Fortescue chief executive Elizabeth Gaines said the iron ore price enables “further accelerated distribution of franking credits to eligible shareholders”.
“This dividend reflects Fortescue’s unwavering determination to deliver shareholder returns through dividends and investment in growth,” she said.
Analysts said the surprise move still left room for a full-year dividend, however, given Fortescue’s dividend policy of paying out 50 to 80 per cent of net profits after tax.
In a note to clients, Macquarie analysts said Fortescue was approaching its 80 per cent payout ratio, according to their earnings estimates, but if spot prices remained high a significant special dividend was possible at the company’s full-year profit announcement.
“If current spot prices hold for the remainder of FY19, we believe Fortescue could declare a further 20c special dividend,” the note said.
But JP Morgan analyst Lyndon Fagan said he did not expect an additional dividend in August.
“While FMG haven’t ruled out a further payment with the August results, we don’t expect anything further. The announcement today accelerates dividend payments to shareholders given strong cash flows. It also allows shareholders to benefit from franking credits, ahead of a potential change in policy under Labor post-election,” he said in a client note.
The move also suggests Fortescue is betting betting Bill Shorten will be Australia’s Prime Minister on Sunday, given the company’s previous desire to use its accumulated franking credits ahead of Labor’s proposed changes on their use.
Back in February Ms Gaines said there was “no doubt” the potential changes had influenced the iron miner’s approach to dividend payments.
“There’s been a lot of speculation about what might happen if there is a change in government and the impacts on franking credits. I think importantly Fortescue has a large franking balance, $1.8 billion before this dividend, so we’ve been a large taxpayer for a long period of time,” she said.
“We have seen the opportunity on the back of a strong performance, to accelerate the distribution of some of those franking credits to eligible shareholders. It probably has had some influence, but it also is on the back of that very strong operational performance and our strong position that we’re in as a business.”
Fortescue closed up 56c to $8.09 on Tuesday.