ASX mining share Northern Star Resources Ltd (ASX: NST) may not be known for paying good dividends, but that reputation may start to change in the next year or two as it builds passive income.
The ASX gold share describes itself as a global-scale Australian gold producer with "world-class projects located in highly prospective and low sovereign risk regions of Australia and North America."
It also says that its portfolio is a portfolio of "high-quality, high-margin underground and open pit gold mines."
The company isn't known for being much of a dividend payer, but the level of the dividend is steadily compounding.
In the FY22 half-year result, Northern Star grew its interim dividend by 5.25% to 10 cents per share. In the latest report, the HY23 result, it increased the interim dividend by 10% to 11 cents per share.
Dividend projections
The company's ongoing growth plans are helping it unlock good cash flows, which is enabling it to carry out a A$300 million share buyback and pay larger dividends.
For example, at the Yandal project, the Thunderbox mill expansion is advancing to sustainably deliver a capacity of 6mt per annum. This should help unlock even further cash flow.
Northern Star shares have a policy for a dividend payout ratio of 20% to 30% of cash earnings. While dividends are currently unfranked, the board said that they could be franked in less than 18 months.
In FY23, the annual passive dividend income payment from Northern Star Resources shares could grow by 21% to 26 cents per share, according to Commsec. In FY24, Northern Star Resources shares' annual dividend payment could grow by another 38% to 36 cents per share.
With that projected dividend payment, the FY24 payment translates into a dividend yield of 2.7%. If it were fully franked, the grossed-up dividend yield would be 3.8%. Earnings per share (EPS) is predicted to then grow by another 11% in FY25, which may then fund another attractive dividend.
Could Northern Star shares turn into a good ASX passive income option?
If the business is able to enact its five-year plan, then not only could the dividend grow thanks to higher earnings, but the business may be able to increase its dividend payout ratio once there are less demands on its capital.
After a strong recovery of the Northern Star Resources share price since mid-2022, it's not as cheap as it was. But, if the gold price keeps going up then it could deliver share price growth and good dividends.
