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Is This the Best Lithium Stock for Dividends and Growth?

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By Tuesday, 04 December 2018 03:47 PM Current | Bio | Archive

Lithium stocks are trending right now, due to the explosive growth potential the industry holds. Lithium is a metal with a number of industrial purposes, from aircraft and batteries to medicine.

In recent years, lithium has become a vital part of nearly every electronic device we use.

Going forward, the biggest driver of growth for the Lithium industry will be electric vehicles, as an electric car requires 5,000 to 10,000 times as much lithium as a mobile phone.

With that in mind, investors could have a huge opportunity on their hands in the form of lithium mining stocks. Albemarle Corporation (ALB) is the top lithium mining stock for income investors, due to its high growth potential as well as its attractive dividend payout.

Business Overview And Growth Prospects

Albemarle produces lithium from salt brine assets in Chile and two joint ventures in Australian mines. Albemarle is headquartered in the U.S. but operates in over 100 countries. It is also the second-largest producer of bromine and a top producer of catalysts used in oil refining.

Albemarle has a long-term contract through 2043 with the Chilean government to be able to extract around 80,000 tons of lithium per year. Albemarle generates annual revenue above $3 billion. It has four operating units: Lithium & Advanced Materials (48% of 2017 revenue), Bromine Specialties (22%), Refining Solutions (21%) and Other (9%).

The company’s momentum is accelerating, as evidenced by its continued growth in recent years. For example, Albemarle has posted revenue growth for 11 quarters in a row, including a 3% revenue growth rate in the most recent quarter. Diluted earnings per share increased 13% to $1.20, driven by revenue growth as well as share repurchases. Albemarle’s adjusted earnings per share increased 22% through the first three quarters of 2018.

Albemarle expects sales growth of 7% to 14% for 2018, along with 15% to 20% earnings growth for the full year. Future growth will be driven by higher lithium pricing, as well as volume growth from new production.

The company continues to sign deals to expand production capacity, such as the recent agreement to form a 50-50 joint venture with Mineral Resources Limited. The two companies will own and operate the Wodgina hard rock lithium mine in Western Australia, a high-quality hard rock lithium deposit with an estimated mine life of over 30 years.

Compelling Value and Dividends

Investors could find Albemarle stock to be a compelling value, given the high growth of the company. Based on 2018 guidance which calls for adjusted earnings of $5.40 per share, the stock trades for a price to earnings ratio of approximately 17.9. This is below the average valuation multiple of the broader S&P 500 Index, despite the fact that Albemarle could reasonably be expected to generate 10%-plus annual earnings growth going forward.

In addition to a tempting valuation, Albemarle is an attractive choice for dividend investors. Unlike many other companies in the lithium industry, Albemarle pays a dividend to shareholders. The current quarterly dividend rate of $0.335 per share results in an annual payout of $1.34 per share. This is equal to a current yield of 1.4%, and there is plenty of room for Albemarle’s dividend to grow. Albemarle had a dividend payout ratio of just 21% last year, a fairly low payout ratio which leaves plenty of room for sizeable dividend increases in the years ahead.

Investors should keep in mind that Albemarle’s profits are quite volatile. Company earnings per share reached a low of $1.94 and $1.69 in 2009 and 2014, respectively. That said, the company has recorded a profit every year in the last decade. It also has a healthy balance sheet. As of the most recent quarterly report, Albemarle had $641 million in cash and equivalents and $7.5 billion in total assets compared to $1.1 billion in current liabilities and $3.8 billion in total liabilities. Despite volatility of the company’s financial performance, Albemarle’s consistent profitability and a strong balance sheet should provide safety to the dividend thanks to a low payout ratio.

Final Thoughts

Lithium stocks have caught the attention of investors, due to their explosive growth from increasing usage of mobile devices. There remains a great deal of future growth potential for the lithium industry, from electric vehicles.

Albemarle is a top company in the lithium industry, due to its established business model and global reach. The company has compelling growth potential moving forward, along with a reasonable stock valuation. In addition, the growing dividend makes the stock (ALB) appealing for income investors.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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Lithium stocks are trending right now, due to the explosive growth potential the industry holds. Lithium is a metal with a number of industrial purposes, from aircraft and batteries to medicine.
lithium, stock, dividends, growth
Tuesday, 04 December 2018 03:47 PM
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