Pilbara Minerals Ltd (ASX: PLS) shares are regaining some recently lost ground today despite the danger of its next dividend disappearing.
As the second half of hump day rolls over, shares in the lithium producer are finding a comfortable position above $3.46. The gain of 6.1% makes it one of the best performers among lithium companies with a market capitalisation of $500 million or more.
However, it's not all sunshine and rainbows flowing from the quarterly update today. It's quite the opposite for those seeking an income from the Perth-based mining company. Let's take a look into why that might be.
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Where art thou dividends?
The news shared by Pilbara Minerals is a double-edged sword. As covered by my colleague, James Mickleboro, the Pilgangoora project owner wants to retain a strong and healthy balance sheet through this downturn in lithium prices.
Between the September and December quarters, Pilbara Minerals saw its cash balance shrink from $3 billion to $2.1 billion. Most of this stemmed from a $758 million tax payment, but it never hurts to have more cash heading into potentially stormy conditions.
Positively, the company appears to be taking a conservative approach to ensure it can maintain its expansion efforts even through a sustained period of lower spodumene prices. The consequence, though, is the need to cut back somewhere else.
Firstly, capital expenditure (CapEx) will be tapered back on 'non-essential new projects' in FY24. This will see CapEx reduce from between $875 million to $975 million down to between $820 million to $875 million.
According to the update, Pilbara Minerals' interim dividend could also be on the chopping block. As noted in the release, "In order to further preserve the Group's balance sheet position while it continues to invest in the P680 and P1000 projects, It is unlikely that a dividend will be paid for the half-year ended 31 December 2023."
The board has yet to make an official decision. However, a determination will be announced alongside the release of its first-half results.
If a dividend were to be paid, the excess cash flow implies a payment of $70 million to $110 million, depending on the payout ratio — ranging from 20% to 30%. Based on the current number of shares outstanding, this would infer 2.3 cents to 3.65 cents per share in dividends.
For context, Pilbara Minerals paid an interim dividend of 11 cents per share in 2023.
No reward for Pilbara Minerals shorters on dividend blow
Despite pulling the upcoming dividend into question, short sellers of Pilbara Minerals shares are getting burned today.
The lithium-languished company sat in pole position as the most shorted ASX share heading into this week. As previously reported, 21.4% of Pilbara Minerals shares were sold short, according to the latest data.
As the Pilbara Minerals share price rips 6% ahead in the afternoon, those shorters would feel worse for wear.
