It's very possible that Mineral Resources Limited (ASX: MIN) could be about to become a leading S&P/ASX 200 Index (ASX: XJO) dividend share. Though its income potential is currently hidden.
The business is involved in the resources sector. It's the world's largest crushing contractor, a leading pit-to-port mining services provider, a "world top five lithium producer" and an "Australian top five iron ore producer". It's also the largest landholder of gas acreage in Perth and Carnarvon basis.
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Why it's a hidden ASX 200 dividend share
The business is already paying dividends to investors.
In FY22 it paid a total dividend of $1 per share. This translates into a grossed-up dividend yield of 1.7%. That certainly doesn't seem like a compelling yield at the moment.
But, the reason why I think it's a "hidden" opportunity is because of what's about to come next.
The company is working on different elements of its business across lithium and iron ore. This is expected to significantly increase the profit, cash flow and dividend of the business in the next couple of years.
For example, the estimated numbers on CommSec for FY24 suggest that the business could generate more than $10.80 of earnings per share (EPS) and pay an annual dividend per share of $4.25. This would translate into a forward grossed-up dividend yield of 7.25%.
But, the broker Macquarie thinks that Mineral Resources can achieve even stronger growth of the dividend, with a potential grossed-up dividend yield of 15.8%.
Whether it's 7%, 16% or somewhere in between, the dividend yield for FY24 (and beyond) could be a lot stronger than it is today from the potential ASX 200 dividend share. We're almost halfway through FY23, so those larger payouts may not be far away.
What is Mineral Resources working on?
In terms of mining services' future growth potential, Mineral Resources-operated projects could see 65% volume growth in the near term.
With its existing iron ore operations, it points to the Yilgam magnetite opportunity. Drilling and study work is underway. It will be assessing the long-term plan over the next three months.
The iron ore Pilbara hub development is another longer-term plan as it will unlock "stranded" iron ore assets. The mine could produce 20mt per annum, with a 30-year life.
Mineral Resources' Onslow iron development is a "transformational, low-cost, long life sustainable iron ore project". Stage one will be 30mt per annum, with a capacity of 35mt per annum.
In terms of the lithium side of the business, Mineral Resources is benefitting from "strong" market fundamentals. Electric vehicle demand is expected to continue, driving strong demand for lithium. While the lithium price won't always be as high as it is today, it's allowing the ASX lithium shares to benefit and boost investor sentiment about the Mineral Resource share price.
The five-year plan for the ASX 200 dividend share's attributable share of lithium hydroxide conversion capacity is a total of around 118kt per annum. Mineral Resources' long-term plan is to continue to capture more of the battery supply chain.
