Fortescue to up dividends

Payout ratio to rise after paying down debt, miner eyes super fund investors.

Fortescue Metals Group (FMG) will use its burgeoning cash flow to increase its dividend payout next financial year, if it reaches its target of paying down about half its $US9.3 billion ($A10.2 billion) debt.

Fortescue chief executive officer Nev Power says that the iron ore miner plans to step up its dividend payout ratio to 30% to 40%, from 17% last financial year.

The group paid a dividend of 10 cents in the 2012-13 year.

Fortescue will make the increase after it pays off another $US4 billion to $US5 billion of its $US9.3 billion debt, putting it at a “comfortable” gearing level of about 40 per cent.

Slicing the debt by up to $5 billion will take 12 to 18 months, Fortescue’s chief financial officer Stephen Pearce says. Fortescue has already repaid about $1.1 billion of its debt.

Speaking from Fortescue’s Solomon operations in the Pilbara, Mr Power says he wants to make the iron ore miner an attractive investment for the country’s large superannuation funds.

“We don’t want to alienate all those big superannuation companies that are predominantly looking for dividend yields out of a business,” Mr Power says.

“We want to keep them growing on our register.”

Mr Power says management is not under pressure by the group’s institutional shareholders to increase dividends.

Blackrock recently took a substantial shareholding in the company because it could see the “yield that is going to come out of the stock, both in capital and dividends”, he says.

Fortescue is enjoying a burgeoning cash flow thanks to increased production, a strong iron ore price and reduced capital expenditure and costs.

Mr Power says the miner is on target to ship 155 mtpa of iron ore by June, as its production from its Kings deposit at Solomon comes online.

First ore from Kings was shipped to China this month.

Amanda Saunders travelled to Perth as a guest of the company.

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