Dividend stocks form the core part of my portfolio, providing me with a source of passive income. Dividends are central to my strategy. I can either reinvest it — which I do most of the time — or use the money to fund my life.
Today, I’m looking at lithium giant Sociedad Química y Minera de Chile (NYSE:SQM). The stock has been on one hell of a bull run. It’s up 43% over the past 12 months as the price of lithium has soared. The company is now selling more lithium at higher prices.
Company profile
SQM isn’t particularly well known in the UK. The Chile-based speciality chemicals company focuses on the mining and production of iodine, lithium and other industrial chemicals.
Lithium is a big story in recent years, and SQM is big in lithium. It is a low-cost producer and has a 25% share of the global lithium market with 20+ years of reserves.
The company has indicated it plans to increase lithium carbonate equivalent capacity by 30% annually until 2025. This should help maintain its market leadership while responding to increasing demand for the silvery-white alkali metal.
Big dividends
With revenues surging throughout 2022, SQM upped its dividend. In fact, the 2022 dividend ($4.5) will be more than double that received in 2021 ($1.9). It offers an 8% yield.
So is that sustainable? Well, if the current level of profitability is maintained, then yes. SQM’s revenue for the quarter ended 30 September was $2.95bn — a 347.18% increase year on year. That’s greater than the entire revenue generation for 2021.
Lithium prices
Lithium prices are core to SQM’s current level of profitability. In the last quarter, the miner posted a net profit of $1.1bn, with lithium revenues growing more than 12 times. In a recent update, the company said that average lithium prices rose to record levels during the last quarter. The average achieved price was around $56,000 per tonne.
Many analysts saw lithium prices falling this autumn. Some suggested prices would fall from highs near $70,000 in the summer, to around $10,000 in 2023.
But that hasn’t been the case. Instead, prices appear to be settling around $60,000. And that’s because demand has remained more robust than originally anticipated. While the global economy might be slowing down, demand for battery dependent products, particularly electric vehicles (EVs), has remained strong.
And, to me, that makes sense. The growth of the EV market appears insulated from other global economic trends. China is central to this. Sales of EVs are expected to exceed 6.5m units in 2022 in China, double last year’s amount. And there’s no slowing down.
So am I buying SQM shares? Yes, I am. But I’m keeping a close eye on the share price amid protests in China.
