The Pilbara Minerals Ltd (ASX: PLS) share price is up 3% as the ASX lithium share revealed how it’s going to return profits to shareholders.
Pilbara Minerals is one of the largest lithium miners in Australia, but it has plans to even bigger. However, the company also wants to reward shareholders with some of the bounty it’s producing.
Dividend plan
The company said that favourable market conditions and strong operating margins “support the establishment of a capital management framework”, including an inaugural dividend policy.
Pilbara Minerals has designed its capital management framework to “establish an appropriate structure that prudently allocates available capital between investment into the existing business sustainability commitments, strategic growth opportunities as well as the provision of sustainable returns to shareholders.”
The business has decided to target a dividend payout ratio of between 20% to 30% of free cash flow. The inaugural dividend payment will be applied to the 2023 financial year.
Extra cash flow beyond the above priorities could then be allocated to further investment to improve the company’s operations, investment in organic opportunities as well as acquisitions opportunities, reduce debt and/or further return money to shareholders.
Big cash pile
Pilbara Minerals noted that it has seen a significant build-up of cash on its balance sheet.
The company said that positive market conditions for lithium raw materials, underpinned by strong operational performance, which has resulted in a “significant build” in the company’s cash balance to $1.375 billion as at 30 September 2022.
The company noted that after utilising all of the prior year’s tax losses, it expects to start paying income tax in February 2023.
Management commentary
Pilbara Minerals Managing Director and CEO Dale Henderson said:
The strong dynamics we are experiencing for the lithium materials market and healthy production profile have quickly transformed the financial position of the business. With this comes the opportunity to bolster the growth path for the business and provide improved long-term value return for our shareholders – many of whom have stayed the course through both our ups and downs.
Final thoughts on the Pilbara Minerals share price
The company has seen its share price rise by around 3% after this announcement. It’s good to see that shareholders are going to start benefiting from the strong profits through dividends. It can still maintain its investment plan and pay out a bit of its cash flow.
However, with the Pilbara Minerals share price up more than 100% over the last 12 months, I think it’s worthwhile being cautious about investing at this high level. There may well a cheaper price to buy at in the coming months.
For now, there may be other ASX growth shares that are not priced as highly. But, if the price does stay high, then the business may yet be cheap.
