There are a number of S&P/ASX 200 Index (ASX: XJO) lithium shares that have shot higher in 2022.
As resource businesses, investor sentiment is quite heavily linked to how the commodity price performs. If the lithium price goes up, that can largely add to profitability. That's because it still costs the same to get the resource out of the ground, but the extra revenue falls to the bottom line.
The lithium price has been climbing this year as demand continued to outstrip supply. Lithium is a key commodity in the production of electric vehicles.
ASX 200 lithium shares are not known for being dividend payers. Of course, it's usually names like BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) that have the big dividend yields.
However, after a period of developing their projects and ramping up production, the lithium miners are now raking in the cash flow from the higher lithium prices.
With that in mind, it's possible that the below two names could start dishing out sizeable dividends to shareholders.
Image source: Getty Images
Pilbara Minerals Ltd (ASX: PLS)
The company recently announced it was planning to start paying a dividend to investors.
It said that favourable market conditions and "strong" operating margins support the establishment of a capital management framework. Additionally, this will include an inaugural dividend policy. In the most recent Battery Material Exchange (BMX) platform auction, the highest bid was US$7,805 per dry metric tonne (dmt).
The idea behind this was to establish an "appropriate structure that prudently allocates available capital between investment into the existing business, sustainability commitments, strategic growth opportunities, as well as the provision of sustainable returns to shareholders".
The ASX 200 lithium share has built up a cash balance of $1.375 billion at 30 September 2022. It's going to target a dividend payout ratio of between 20% and 30% of free cash flow. What's more, this will start in FY23 (the current financial year).
This dividend payout ratio intends to "provide a sustainable dividend return to shareholders, but also reflects the early stages of Pilbara Minerals' growth cycle".
According to estimates on CommSec, it could pay a grossed-up dividend yield of 4.6% in FY24.
Mineral Resources Limited (ASX: MIN)
Mineral Resources is a part iron ore, part ASX 200 lithium share. It has been paying dividends to shareholders for years. However, it's possible that the dividend could soar higher in the next couple of years as the company's growth projects come online.
The business is working on a number of things to try to boost its profitability in the future. For example, on the lithium side of things, it's looking to double the Mt Marion capacity, ramp up the Kemerton hydroxide plant, convert spodumene to hydroxide and evaluate hydroxide development opportunities. It's targeting 118kt per annum of hydroxide production.
While this is a lithium article, I'll note that Mineral Resources also wants to increase its iron ore production.
CommSec numbers suggest that by FY24, the company could be paying a grossed-up dividend yield of 7.2%. On the broker Macquarie's numbers, FY24 could see the ASX 200 lithium share pay a grossed-up dividend yield of 15.5%.
