Could these ASX 200 lithium shares grow into dividend juggernauts?

There aren't many ASX 200 stocks involved with the battery-making material that pay dividends. Could these lithium miners be the game-changers?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points
  • Buying high yield ASX 200 dividend shares might not be the best way to build passive income, Morgans is said to have warned
  • Instead, the broker encourages investors to look for dividend shares with lower yields and greater growth prospectus, a move it believes will speed up their return on investment and income growth
  • It reportedly believes two ASX 200 dividend-paying lithium shares fit the bill

An investor aiming to grow passive income from S&P/ASX 200 Index (ASX: XJO) dividend shares would be forgiven for overlooking those in the lithium space.

For starters, there aren't many ASX 200 stocks involved with the battery-making material that pay dividends. Additionally, those that do are generally trading with below-average dividend yields.

Two ASX 200 dividend-paying lithium shares are Mineral Resources Limited (ASX: MIN) and IGO Ltd (ASX: IGO). They currently offer respective dividend yields of around 3.5% and 0.6% respectively.

Comparatively, the SPDR S&P/ASX 200 (ASX: STW) – which seeks to track the index – currently offers a 4.75% yield.

But could the two ASX 200 lithium stocks be future dividend winners? One expert thinks they have a decent chance.

Two smiling men in high visibility vests and yellow hardhats stand side by side with a large mound of earth and mining equipment behind them smiling as the Carnaby Resources share price rises today

Image source: Getty Images

Are these ASX 200 lithium shares future dividend winners?

The team at Wilsons recently warned investors that seeking out the highest dividend-yielding shares may not be the best way to grow passive income, my Fool colleague Tony reports. The broker was quoted as saying:

High yield stocks have proven to underperform the market on a long-term view.

We therefore believe a dividend strategy cannot solely rely on high yielding stocks to be successful.

Instead, the expert encouraged market watchers to seek out companies with room to grow their profits ­– and thereby their dividends. Continuing:

We think it is also paramount to consider companies based on their competitive positioning and industry backdrop, their earnings quality, and their long-term growth outlook.

And, using such metrics, two ASX 200 lithium shares have caught the broker's eye.

Filtering stocks for criteria including defensive earnings and a positive industry outlook, it landed on Mineral Resources and IGO.

The former was included in the company's higher-yielding screen while the latter landed in its higher growth screen, Wilsons equity strategist Rob Crookston wrote for Livewire, continuing:

Over the long-term, high-dividend-yield stocks do not guarantee higher dividend income. Dividend yield and share price appreciation join forces to deliver attractive returns over time.

The idea is, buying shares with lower yields and higher growth prospects might provide a greater return on investment (ROI) sooner than buying high-yielding stocks. Doing so could also result in more dividend income for a lower cost over the long term. A logical conclusion in my eyes.

The expert also said Morgans believes lithium miners are "in a structural uptrend". That's good news for those invested in the sector.

Though, no stock, not even ASX 200 lithium shares, are guaranteed to grow or pay future dividends.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

Person with a handful of Australian dollar notes, symbolising dividends.
Dividend Investing

Why now could be the perfect time to buy ASX dividend stocks

Regardless of what point of the economic cycle we're in, ASX dividend stocks are a long-term play.

Read more »

Person handing out $100 notes, symbolising ex-dividend date.
Dividend Investing

This is the ASX 300 share offering a 9% dividend yield!

There’s a lot to like about this business for dividends and growth.

Read more »

A group of people gathered around a laptop computer with various expressions of interest, concern and surprise on their faces as they review the payouts from ASX dividend stocks. All are wearing glasses.
Dividend Investing

Is it time to load up on these high-yielding ASX dividend shares?

Tumbling share prices have pushed the yields up to 9%.

Read more »

Person with a handful of Australian dollar notes, symbolising dividends.
Dividend Investing

3 must-own ASX dividend shares which belong in every portfolio

If you want long-term passive income you need to consider these three ASX dividend shares.

Read more »

Woman calculating dividends on calculator and working on a laptop.
Dividend Investing

2 ASX dividend shares to hold for the next 7 years

Income investing doesn’t have to be complicated. These two ASX shares stand out to me.

Read more »

Excited couple celebrating success while looking at smartphone.
Dividend Investing

3 ASX income stocks trading at attractive prices

Analysts tip an upside ahead for each of these ASX shares.

Read more »

A woman sits on a step laughing at something on her mobile phone as it is being charged by a lithium-powered battery.
Dividend Investing

5 reasons why I'd buy Telstra shares for passive income

Looking for reliable passive income? Here’s why Telstra stands out to me right now.

Read more »

Close-up of a business man's hand stacking gold coins into piles on a desktop.
Dividend Investing

Should I put 100% of my money into this ASX dividend stock for passive income?

Should passive income investors go all in on Dicker Data shares?

Read more »