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What are we looking for?

Sustainable dividends from lithium producers

The screen

The auto industry’s rising commitment to electric vehicles (EVs) has pushed lithium prices to three-year highs. Demand for the soft metal, which is integral to EV batteries, will only rise as automakers ramp up production following a COVID-19 slowdown. At the same time, a former lithium glut has limited plans for new mining.

Longer term, lithium prices could again fall if deposits previously deemed unprofitable to mine are accelerated into production. Lithium recycling efforts will also have an impact.

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Still, for investors, the outlook for lithium is positive – at least in the near term.

Our search started with a list of lithium producers with strong production and prospects. We then extended the search to the ETFs that hold these 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 the company 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 foreign currency 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. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Sustainable lithium stocks

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($US Bil.)1Y Ttl. Rtn. (%) Recent Price (US$)
1Rio Tinto plc (ADR)RIO-NAverage69.986.513.169.05
2Albemarle Corp.ALB-NAverage60.725.4134.2223.66
3Global X Lithium & Battery Tech ETFLIT-NAverage60.24.895.684.10
4Mineral Resources Ltd. (ADR)MALRY-OTCAverage56.26.075.431.57
5Sociedad Quimica y Minera De Chile S.A. (ADR) SQM-NAverage51.514.152.353.31

Source: Dividend Advisor

Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements.

North Carolina-based Albemarle Corp. is one of the world’s biggest producers and processors of lithium for EV batteries. Also note that its meagre dividend yield reflects strong share price gains over the past 18 months.

Sociedad Quimica y Minera de Chile SA, in Santiago, Chile, is another global leader, while Perth, Australia-based Minerals Resources Ltd. operates two lithium mines in that country. Anglo-Australian mining giant Rio Tinto PLC is steadily upping its lithium output, including at its Boron mine in California. It’s also targeting development of a new mine in Serbia.

To supplement the few dividend-paying lithium stocks out there for investors, we’ve added an ETF: New York’s Global X Lithium & Battery Tech ETF pays only a small dividend – again, a reflection of lithium’s stellar price gains – but gives investors access to miners, refiners and battery producers.

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The Toronto-based Horizons Global Lithium Producers Index ETF also has assets spread across the world’s top lithium producers, but it doesn’t yet pay a dividend.

We advise investors to do additional research on any investments we identify here.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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