ASX lithium share Pilbara Minerals Ltd (ASX: PLS) has delivered enormous capital growth for investors over the last five years, with the share price rising around 500%.
Now that the ASX mining share is starting to pay dividends, we might soon be able to think of it as an ASX dividend share that could pay $1,000 of dividends to an investor's bank account.
Miners go through different stages. First, there's exploration, then project development, then they start producing the commodity and finally, they become cash flow positive.
Pilbara Minerals is now firmly in the cash cow phase. In the three months to 31 March 2023, its cash balance increased by $457 million to $2.68 billion.
In November last year, the company announced its capital management framework, including its starting dividend payout ratio policy. It's balancing its available cash between investment into the business and providing cash payments to shareholders.
Expected passive income from Pilbara Minerals shares
The ASX lithium share has a target dividend payout ratio established at 20% to 30% of free cash flow.
Pilbara Minerals defined its free cash flow as "operating cash flow less tax paid/payable and less sustaining capital" (including capitalised waste mine development).
Management believes this will mean the business has enough sustaining capital to maintain operational performance and further investment into sustainability commitments and initiatives. It is also establishing and maintaining balance sheet strength to "protect the company through all commodity price cycles" (including maintaining prudent debt levels).
Any extra cash flow can be used to reduce debt, invest for more growth, or simply return extra capital to shareholders in the form of special dividends, share buybacks, or capital returns.
According to Commsec, the business is expected to generate 53.5 cents of earnings per share (EPS) and pay an annual dividend per share of 15 cents.
That 15 cents per share payment would translate into a grossed-up dividend yield of 4.4%. This isn't a bad yield at all, though investors would have received a better yield if they'd bought at a cheaper price earlier this year.
How to receive $1,000 in dividends from Pilbara Minerals shares
The ASX lithium share's FY24 projected payout is solid.
If we don't include franking credits as part of the equation, then investors will receive a cash yield of 3%.
At that yield level, we're talking about owning approximately $32,667 of Pilbara Minerals shares, which would be 6,667 shares.
However, if we include franking credits – which are useful and fully tax refundable for some investors – the 4.4% grossed-up dividend yield would mean we need to own 4,667 Pilbara Minerals shares for a total cost of $22,867.
