Could these ASX 200 lithium shares grow into dividend juggernauts?


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An investor aiming to grow passive income from S&P/ASX 200 Index (ASX: XJO) dividend shares would be forgiven for overlooking those in the lithium space.

For starters, there aren’t many ASX 200 stocks involved with the battery-making material that pay dividends. Additionally, those that do are generally trading with below-average dividend yields.

Two ASX 200 dividend-paying lithium shares are Mineral Resources Limited (ASX: MIN) and IGO Ltd (ASX: IGO). They currently offer respective dividend yields of around 3.5% and 0.6% respectively.

Comparatively, the SPDR S&P/ASX 200 (ASX: STW) – which seeks to track the index – currently offers a 4.75% yield.

But could the two ASX 200 lithium stocks be future dividend winners? One expert thinks they have a decent chance.

Are these ASX 200 lithium shares future dividend winners?

The team at Wilsons recently warned investors that seeking out the highest dividend-yielding shares may not be the best way to grow passive income, my Fool colleague Tony reports. The broker was quoted as saying:

High yield stocks have proven to underperform the market on a long-term view.

We therefore believe a dividend strategy cannot solely rely on high yielding stocks to be successful.

Instead, the expert encouraged market watchers to seek out companies with room to grow their profits ­– and thereby their dividends. Continuing:

We think it is also paramount to consider companies based on their competitive positioning and industry backdrop, their earnings quality, and their long-term growth outlook.

And, using such metrics, two ASX 200 lithium shares have caught the broker’s eye.

Filtering stocks for criteria including defensive earnings and a positive industry outlook, it landed on Mineral Resources and IGO.

The former was included in the company’s higher-yielding screen while the latter landed in its higher growth screen, Wilsons equity strategist Rob Crookston wrote for Livewire, continuing:

Over the long-term, high-dividend-yield stocks do not guarantee higher dividend income. Dividend yield and share price appreciation join forces to deliver attractive returns over time.

The idea is, buying shares with lower yields and higher growth prospects might provide a greater return on investment (ROI) sooner than buying high-yielding stocks. Doing so could also result in more dividend income for a lower cost over the long term. A logical conclusion in my eyes.

The expert also said Morgans believes lithium miners are “in a structural uptrend”. That’s good news for those invested in the sector.

Though, no stock, not even ASX 200 lithium shares, are guaranteed to grow or pay future dividends.

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