Increased shareholder returns at Fortescue Metals Group are looking less likely in the near term.
That's the view of RBC Capital Markets analysts following Fortescue's announcement that it intended to repay $US1 billion of debt due which is not due until 2019.
"The company's commitment to debt repayments has further improved gearing levels below the stated target, and continues to strengthen the balance sheet," the analysts told clients on Friday morning.
"We had previously expected FMG to focus on shareholder returns, though the increase to the dividend payout (RBCe: 60% of net earnings, from 40%) now appears less likely in the near term.
"However, the early repayment of debt is clearly positive as it strengthens the balance sheet and provides the company with greater optionality around utilising its free cash flow in the future."
Fortescue's move comes after boss Nev Power said repaying debt was his top priority, rather than chase acquisitions.
"We are not driven by growth for growth's sake," he told analysts on February 21.
RBC Capital Markets analysts expect Fortescue's gearing to be 29 per cent at March 30, which would be below the company's 40 per cent target.
