ASX200 | Fortescue (ASX:FMG) and the Rising Appeal of Materials Sector Shares

July 02, 2025 02:38 AM PDT | By Team Kalkine Media

ASX200 | Fortescue (ASX:FMG) and the Rising Appeal of Materials Sector Shares — Image source: Shutterstock

Expanding Beyond Iron Ore

Founded in 2003 and based in Perth, Fortescue has long been known for its large-scale iron ore production, currently shipping over 190 million tonnes annually from its Pilbara operations. In recent years, the company has actively broadened its resource footprint with exploration projects in Australia, Brazil, Chile, Argentina, and Kazakhstan.

This expansion targets critical future-facing materials—namely copper, lithium, and rare earth elements—crucial to the growing global demand for renewable energy infrastructure. With green energy technologies like electric vehicles and solar panels driving up resource needs, Fortescue is positioning itself at the center of this accelerating trend.

Sector-Level Growth and Income

The materials sector has demonstrated solid, if unspectacular, capital growth over the past five years. The S&P/ASX 200 Materials Index (ASX:XMJ) recorded an average annual growth of 3.53%, which is notably less than the broader S&P/ASX 200 index (ASX:XJO) at 7.19%. However, many companies in this sector have a strong track record of paying substantial dividends, a feature that continues to appeal to income-focused portfolios.

Fortescue’s dividend yield has averaged 10.52% over the last five years—an impressive figure by market standards. While commodity price volatility can influence both share prices and dividends, the company's reputation for shareholder returns remains a drawcard.

Current Valuation Perspective

As of now, Fortescue offers a dividend yield of approximately 12.42%, well above its historical average. This suggests the share price may currently be trading below longer-term trends, or that dividend payouts have increased. Given that the most recent dividend exceeded the three-year average, the latter explanation holds weight, pointing to consistent or improving shareholder returns.

Competitive Landscape

While Fortescue strengthens its position through diversification, other major miners such as BHP Group Ltd (BHP) and Rio Tinto Ltd (RIO) are also heavily investing in similar materials to leverage the clean energy transition. This collective shift by major players highlights the sector’s alignment with long-term global demand patterns.

Fortescue's combination of high dividend yield, exploration-driven growth, and alignment with green energy trends underpins its ongoing relevance in today’s market environment.

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