The Lynas Rare Earths Ltd (ASX: LYC) share price has been among the more inspiring ASX success stories over the last few years, despite no dividends having been paid by the company.
The stock has gained more than 250% over the last three years amid soaring demand for rare earths. Right now, it's trading for $8.68.
Like lithium and copper, which are perhaps better known, rare earths are an essential component of modern technology and, in turn, the green energy transition.
As demand for rare earths has taken off, so have the company's earnings.
It posted $601 million of earnings before interest, tax, depreciation, and amortisation (EBITDA) and a $540 million after-tax profit for financial year 2022 – up 156% and 244% respectively year-on-year. It also closed the year with $965.6 million of cash and cash equivalents.
Why, then, is Lynas not offering those invested in its shares a dividend? And could payouts be on the cards in the future? Let's take a look.
Image source: Getty Images
Could dividends be on the horizon for Lynas shares?
As the figures above suggest, Lynas appears financially able to offer shareholders a dividend.
The miner's earnings per share (EPS) lifted to 59.95 cents last financial year. Even paying out 30 cents of that would see the stock with a healthy 3.46% dividend yield.
But I don't think investors should be holding their breath for dividends in the very near future, for two reasons.
First, while the company is profitable in 2022, that's a relatively new development.
It has only posted a profit for two consecutive financial years, having lost nearly $19.4 million in financial year 2020. It's also worth noting that Lynas' revenue slumped 44% in the September quarter.
Thus, it might be waiting until it has more stable earnings before it begins to offer dividends.
Perhaps a more compelling reason I'm sceptical about forthcoming dividends, however, is Lynas' growth strategy.
The Lynas 2025 growth plan aims to grow the company alongside the market, diversify its industrial footprint, and increase its product range.
After announcing the plan in 2019, the company declared its accelerating and increasing its efforts in August as it revealed a $500 million expansion project at Mt Weld – fully funded from cash flow.
Speaking on the company's recent full-year earnings, CEO and managing director Amanda Lacaze said:
Further investment in capacity increases at each stage of production will ensure that Lynas is well positioned to continue to grow with the market as a supplier of choice to 2025 and beyond.
With such a focus on growth, it makes sense Lynas might forego offering dividends to those invested in its shares.
However, nothing is certain on the ASX. The company could very well be gearing up to offer a dividend as we speak.
