Up until now, ASX lithium shares have attracted investors for the potential capital growth. But, could something like Pilbara Minerals Ltd (ASX: PLS) stock be an appealing pick for dividend income?
Pilbara Minerals has been raking in a lot of cash over the past 18 months as the company benefited from strong lithium prices.
While some ASX lithium shares are still in the development stage of their project(s), Pilbara Minerals has made enough profit to feel confident to start paying dividends to shareholders.
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What level of payments will the ASX lithium share pay?
Near the end of last year, Pilbara Minerals decided to establish a 'capital management framework', including an inaugural dividend policy.
The idea of that framework was that it would 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."
Regarding Pilbara Minerals stock dividend payments, the target dividend payout ratio was established at 20% to 30% of free cash flow.
So, paying dividends by the business requires profit generation. If it keeps making a good profit then it can keep paying out some of the profit to investors.
What dividends could Pilbara Minerals stock pay?
The first dividend paid by the business was 11 cents per share in the FY23 first-half result. More dividends are expected.
The forecast on Commsec suggests that the annual dividend per share could be 21.3 cents, which would mean an FY23 final dividend of 10.3 cents per share.
My colleague Brooker Cooper recently reported on expectations by Goldman Sachs that Pilbara Minerals stock could pay an annual dividend per share of 22.1 cents per share in FY23.
The above projections, therefore, suggest that the FY23 grossed-up dividend yield from the ASX lithium share could be between 6.6% to 6.8%.
However, profit is expected to drop by around a third in FY24. The lithium price has dropped over the last several months.
The forecast on Commsec suggests that the 2024 annual payout could be 11.5 cents, while the 2025 payment could be 10 cents per share, which would be a grossed-up dividend yield of 3.5% and 3.1% respectively.
The ASX lithium share is expected to keep paying dividends, but the payout may not be as attractive in the coming years compared to FY23. But, Pilbara Minerals stock could deliver stronger-than-projected dividends if the lithium price were to rebound. Time will tell what the price does.
But, the business could benefit from the strong decarbonisation demand from the US and could grow profit on its own with the P1000 project.
