What are we looking for?
Sustainable dividends from top lithium producers
The screen
The auto industry’s rising commitment to electric vehicles (EV) will continue to spur demand for lithium. In fact, just this week, Ford Motor Co. inked a number of deals to source battery-grade lithium from producers Albemarle Corp. ALB-N, Sociedad Quimica y Minera de Chile SA SQM-N and others.
Demand for that soft metal – integral to EV batteries – should continue to rise as automakers ramp up production numbers over the next few years.
Lithium prices are now down from 2022′s record highs, partly because of a slowdown in China’s EV market as that economy remains sluggish and Chinese government subsidies for EV purchases expire.
Still, investors can count on a positive long-term outlook for lithium.
Our search started with a list of lithium producers – all with strong production and prospects. We then extended our search to ETFs that hold lithium producers before applying our TSI Dividend Sustainability Rating System to home in on the top dividend payers. Our system awards points to a stock based on key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- Two points if it has raised the payment in the past five years;
- One point for management’s commitment to dividends;
- One point for operating in non-cyclical industries;
- One point for limited exposure to currency exchange rates and freedom from political interference;
- Two points for a strong balance sheet, including manageable debt and adequate cash;
- Two points for a long-term record of positive earnings and cash flow to cover dividends;
- One point if the company is an industry leader.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated five stocks/ETFs: North Carolina-based Albemarle Corp. is one of the world’s biggest producers and processors of lithium for EV batteries. (Note its meagre dividend yield reflects its strong share price gains over the past three years and, most recently, on the deal announced with Ford.) Sociedad Quimica y Minera de Chile, in Santiago, Chile, is another global leader, while Perth, Australia-based Minerals Resources Ltd. MALRY operates two lithium mines in the country. British mining giant Rio Tinto PLC RIO-N aims to steadily lift its lithium output, including from the Rincon project in Argentina.
To supplement the few dividend-paying stocks out there for investors, we’ve added a lithium ETF: New York’s Global X Lithium & Battery Tech ETF LIT-A pays only a small dividend – again, a reflection of lithium’s overall gains – but it lets investors tap both miners and refiners as well as battery producers. While the Toronto-based Horizons Global Lithium Producers Index ETF also has assets spread across the world’s top lithium producers, it doesn’t pay a dividend.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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Scott Clayton