Rolls-Royce Holdings PLC (LSE:RR.) shares were powered up to an all-time high on Thursday after the aerospace firm confirmed dividend payments would return this year.
This first dividend since 2020 will mark the “cherry on top” for investors who backed the FTSE 100-listed firm since issues with its Trent 1000 engine and the pandemic struck in quick succession, AJ Bell’s Russ Mould commented after Thursday’s interims.
“While the scale of the dividend might only be tiny and produce a minuscule yield, the fact it is returning any cash at all is a significant step forward,” he added.
This comes after Rolls-Royce has undergone a rapid turnaround plan since Tufan Erginbilgic took charge early last year.
Since then the share price has climbed almost five-fold to reach a new record high of 501.20p on Thursday.
Rolls’ civil aerospace wing is largely to thank for the company’s latest bumper results, Hargreaves Lansdown analysts noted, which saw overall operating profit jump 70% to £1.1 billion.
This is after the segment delivered an 85% increase in profit to £740 million on the back of efficiencies, better contracts, growing volumes and especially improved large engine flying hours.
Such flying hours determine the value of Rolls’ service contracts, with large engines racking up 101% of the time in the air compared to pre-pandemic levels over the first half.
Hargreaves’ Aarin Chiekrie noted this was driven by stubborn demand for travel, but also Rolls’ growing fleet of wide-bodied planes.
Groundings during the pandemic had hit Rolls-Royce, coming shortly after issues with its Trent 1000 engine were left needing to be fixed.
Rolls updated on Thursday that £42 million had been taken from provision over the half year to cover these, with flight testing for the latest Trent 1000 blade set to start soon.
Aside from civil aerospace, Rolls also reported improvements in its defence wing, where revenue climbed 18% to £2.2 billion on the back of improved pricing, and the company’s power systems wing.
Positive news came for the company earlier this month as Rolls’ small modular reactor passed the second stage of the UK’s design assessment.
“[This adds] to our competitive advantage,” the company hailed on Thursday, given Rolls was the first to reach the milestone.
Rolls’ turnaround plan included refocusing efforts on these three core civil, defence and power system segments, with completion of the sale of its smaller engine business, also on Thursday, marking part of this reshuffle.
Following such “tough decisions,” Mould noted Rolls-Royce “had managed to climb back out” of “a very deep hole”.
Chiekrie added the company’s 2027 mid-term targets for operating profit, margin and free cash flows as high as £2.8 billion, 15% and £3.1 billion respectively were now “well within reach” as a result.
“Investors should remain positive on the outlook for Rolls-Royce, but also be aware that the pace of improvements is likely to slow over the coming years,” he said.
Shares climbed 11.3% on Thursday.