Fortescue (ASX: FMG) Delivers Record Shipments and a 24% Dividend Hike, So Why Are Brokers Saying Sell?

Fortescue beats on dividends, but iron ore risk grows

Fortescue (ASX: FMG) just posted a half-year result that most companies would be proud of. Record iron ore shipments of 100.2 million tonnes, a 23% jump in net profit to US$1.91 billion, and a fully franked interim dividend of A$0.62 per share, up 24% on last year. The company also holds the lowest production costs in the industry at US$18.64 per wet metric tonne. On the surface, this looks like a business firing on all cylinders.

Yet here is the puzzle. The stock is trading around A$20.50, and the average broker target sits closer to A$19.60 to A$20.10. Very few analysts maintain a buy rating, with the consensus firmly at hold or sell across most major brokers. That is a striking disconnect for a company that just beat market expectations on earnings and dividends. So what are brokers worried about?

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Fortescue Delivers Record Results, But the Market Isn’t Convinced

The short answer is iron ore prices. Fortescue makes almost all its money from selling iron ore, mostly to China. And the outlook for iron ore is getting cloudier. Guinea’s massive Simandou project has started shipping ore and is expected to ramp up to 120 million tonnes per year by 2030. That is a lot of new supply hitting a market where Chinese steel demand is already softening.

UBS expects iron ore to average US$96 per tonne this calendar year and drop to US$90 in 2027. Westpac (ASX: WBC) is even more cautious, forecasting US$83 per tonne by the end of 2026. If those numbers play out, Fortescue’s profit margins will shrink, and dividends could follow. This is why brokers are cautious despite the strong result. They are pricing in a tougher road ahead, not rewarding what has already happened.

Unlike BHP (ASX: BHP) and Rio Tinto (ASX: RIO), which earn revenue from copper, aluminium and other commodities, Fortescue has very little diversification. That makes it one of the most sensitive stocks on the ASX to iron ore price swings, for better or worse.

The Green Spending Debate: Vision or Value Destruction?

The second concern is spending. Fortescue has committed around US$6.2 billion to its Real Zero strategy, which aims to replace diesel and gas across its Pilbara mines with renewable energy by 2030. Within its FY26 capex guidance of US$3.3 to US$4.0 billion, up to US$1.2 billion is earmarked for decarbonisation alone.

Management argues this spending will lower costs over time by replacing diesel and gas with cheaper renewables and battery storage. The company has already started installing battery storage systems and solar panels at its mine sites. In theory, this could give Fortescue a structural cost advantage over peers who remain exposed to volatile fuel prices.

We believe the logic is sound, but the execution risk is real. These projects are not yet generating earnings, and the payoff timeline stretches into the late 2020s. Fortescue has already walked away from several major hydrogen projects, including the Gibson Island plant in Brisbane and its PEM50 facility in Gladstone, after facing commercial challenges and policy uncertainty. That retreat suggests management is learning to be more selective about where it spends, which is encouraging. Still, this remains a show-me story for investors.

The Investor’s Takeaway for FMG

Fortescue offers a forward dividend yield of roughly 5.5% to 6% based on UBS’s FY26 forecast of A$1.22 per share. It is worth noting that this forecast assumes a lower second-half payout of around A$0.60, so if iron ore prices hold above US$100 per tonne, the full-year dividend could come in higher. The balance sheet is healthy with US$4.7 billion in cash and modest net debt of US$1.0 billion. For income investors who can stomach commodity cycle volatility, those fully franked dividends are hard to ignore.

But the risk-reward looks finely balanced. The market has already priced in the strong result, and with iron ore forecasts trending lower and green capex still unproven, we believe the stock is a hold at current levels. Patient investors may find better entry points in the months ahead if iron ore softens as brokers expect.