ASX lithium shares have been working for some time on bringing production online. Some companies are now making appealing cash flow which can be used to pay investors equally appealing dividends.
No doubt, there is growing demand for electric vehicles and this is subsequently leading to more demand for the lithium commodity as well as a strong lithium price.
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Dividends increased by ASX lithium shares
FY23 saw a few ASX lithium shares start paying (much bigger) dividends.
Pilbara Minerals Ltd (ASX: PLS) didn't pay any dividends in FY22 and decided to pay an annual dividend per share of 25 cents in FY23 following a 326% increase in statutory net profit after tax (NPAT) to $2.39 billion. The board of Pilbara Minerals has decided to target a dividend payout ratio of between 20% to 30% of free cash flow.
ASX mining share IGO Ltd (ASX: IGO), which has a large exposure to lithium, saw its net profit jump 66% year over year to $549 million. The company's recently updated shareholder returns policy is to target returns between 20% to 40% of underlying free cash flow when liquidity is below A$1 billion. When liquidity is above $1 billion, the board can consider a dividend payout beyond the 40% threshold.
In the FY23 result, the IGO board decided on a total dividend per share of 74 cents per share (up 640%).
At the current Pilbara Minerals share price, its FY23 payout represents a grossed-up dividend yield of 7.6%. The FY23 payout from IGO shares also represents a grossed-up dividend yield of 7.6%.
How does this compare to other miners?
If we look at how large the dividend yield from some ASX iron ore shares could be in FY24, I'd say the IGO and Pilbara Minerals FY23 payouts look quite compelling.
According to Commsec, the Fortescue Metals Group Ltd (ASX: FMG) grossed-up dividend yield could be 7.8%, with profit expected to decline after a fall in the iron ore price.
BHP Group Ltd (ASX: BHP) shares could deliver a grossed-up dividend yield of 6.8% in FY24.
However, the problem for owners of Pilbara Minerals and IGO shares is that the lithium price has also declined, which means the companies' profits may not be as good in FY24 as they were in FY23. This could mean their dividend payouts may fall as well.
The Commsec estimates imply the Pilbara Minerals FY24 grossed-up dividend yield could be 4.25% and the IGO FY24 grossed-up dividend yield could be 4.3%. Perhaps unsurprisingly, the two ASX lithium shares are expected to see a similar decline from their FY23 payouts.
Foolish takeaway
While the next 12 months may not be as rewarding as FY23, shareholders of these two ASX lithium shares can seemingly look forward to an ongoing flow of cash in the form of dividends.
While the yields may not be quite as good as the iron ore payouts, the lithium market certainly seems to have a promising long-term growth outlook.
