Rolls-Royce shares take off as FTSE 100 giant brings back dividends
Rolls-Royce has reinstated dividends and unveiled a £1bn share buyback programme as full-year profit comfortably beat expectations.
The FTSE 100 engineering giant on Thursday proposed a 6p per share dividend for investors in what marks its first payout since before the pandemic.
A £1bn share buyback programme will also commence immediately and be completed through 2025, it said in a statement to markets.
Shares soared more than 14 per cent in early deals as investors jumped on the gravy train.
Revenue of £17.8bn also beat analysts’ consensus of around £17.3bn.
On the back of this stellar performance, Rolls-Royce hiked its medium-term targets for profit and free cash flow.
Underlying operating profit is now expected to fall in the range of £3.6bn and £3.9bn by 2028, while free cash flow is expected to come in at between £4.2bn and £4.5bn.
“We are moving with pace and intensity,” chief executive Tufan Erginbilgic, who has engineered a remarkable turnaround in his first two years, said in a statement.
“Based on our 2025 guidance, we now expect to deliver underlying operating profit and free cash flow within the target ranges set at our Capital Markets Day, two years earlier than planned.
He added: “Significantly improved performance and a stronger balance sheet gives us confidence to reinstate shareholder dividends and announce a £1bn share buyback in 2025.”
Shares in Rolls-Royce have surged since Erginbilgic joined in January 2023 as a cocktail of booming travel demand and geopolitical tension fuel orders for its jet engines and defence technology.
The stock price has almost doubled over the past 12 months and rose almost sixfold over the past two years.
“The group’s turnaround has been so impressive that some of its 2027 guidance has been hit two years early, causing the group to upgrade its mid-term guidance,” Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said.
“Revenues are being boosted by the upward trend in engine-flying hours, which are now cruising above pre-pandemic levels. But that’s just one part of the puzzle.
“Layoffs, contract renegotiations, process changes, and increased use of data to drive efficiencies have put Rolls on a much healthier platform. As a result, margins have moved much higher, helping to convert the increased flying hours and revenue into profits.”