Pilbara Minerals Ltd (ASX: PLS) shares closed up 0.82% on Wednesday, trading for $3.69 apiece.
The company has been hit hard over the past three months, with the stock down 31% since 10 August.
That retrace, as we'll look at below, could present a good entry point for passive income investors.
Like most of its rivals, the S&P/ASX 200 Index (ASX: XJO) lithium stock has faced headwinds from a sharp fall in lithium prices since the all-time highs of last November.
In its third-quarter update, the company reported receiving an average realised price of US$2,240 per tonne for its lithium over the three months to 30 September. That was down 31% from the prior quarter and 47% year on year.
Which brings us to…
Targeting Pilbara Minerals shares for passive income
Before we dive into some numbers, a few important points.
First, if I'm aiming to secure a second income from ASX shares, I'll want to invest in a number of stocks (at least five), operating across a range of different sectors. That will reduce the risk of my income taking a big hit from headwinds buffeting any particular company or industry.
Second, while the retrace in Pilbara Minerals shares means buying today will net me a higher long-term yield than investors who bought in August, there are no guarantees that future dividends will be similar to the past 12 months.
In fact, they're almost certain to be different. Maybe lower. Maybe higher.
On that front, the lithium price will play an important role.
At the quarterly update, management said they expect lithium prices will remain volatile in the near term "given uncertain macroeconomic conditions and closely managed inventories in the supply chain".
But they were optimistic longer term, which would bode well for future passive income streams from Pilbara Minerals shares.
According to the miner:
The long-term outlook for lithium materials supply remains positive with an expected structural deficit of lithium materials supply relative to the expected demand for lithium-based products such as electric vehicles and battery energy storage.
How many shares of the ASX lithium stock do I need for a $2,000 second income?
Now let's look at those numbers.
Pilbara Minerals shares delivered their maiden, fully franked dividend on 24 April. The ASX 200 lithium stock made its final dividend payment of 14 cents per share on 27 September.
That adds up to a full-year payout of 25 cents per share. At yesterday's closing price of $3.69 a share, this equates to a fully franked trailing yield of 6.8%.
So, if I'm targeting a second income of $2,000 a year, I'd need to buy 8,000 Pilbara Minerals shares today.
That would cost me $29,440.
Now, that's a hefty sum to be investing all in one go.
But that's okay.
Investing is a long game.
I can always invest smaller amounts, say $1,000 a month, and I'll reach my second income goal in good time.
