Rolls-Royce has announced plans to pay out a dividend to shareholders for the first time since the pandemic, as it increased its profit expectations for the financial year.

In the engineering firm’s half-year results, it said its shareholders would receive their first payouts since early 2020, with payments starting at a 30% ratio of underlying profit, before shifting to a ratio of 30% and 40% a year.

In the first six months of the year, revenue at Rolls-Royce hit £8.1bn, up from £6.9bn in the same period last year, while operating profit almost doubled from £673m to £1.15bn.

Chief executive officer at Rolls-Royce Tufan Erginbilgic, said: "Our transformation of Rolls-Royce into a high-performing, competitive, resilient, and growing business is proceeding with pace and intensity. We are expanding the earnings and cash potential of the business in a challenging supply chain environment, which we are proactively managing. We are on track to deliver our mid-term targets.

"Our strong first half results reflect the continued delivery of our strategic initiatives and a relentless focus on commercial optimisation and cost efficiencies across the Group. These results and our increased financial resilience give us the confidence to raise our 2024 guidance and reinstate shareholder distributions in respect of the full year 2024 results."

Following these results, Rolls-Royce has increased its operating profit guidance to between £2.1bn to £2.3bn and has also upped its guidance for its free cash flow from £1.7bn to £1.9bn to between £2.1bn to £2.2bn.

The FT has reported that shares increased by 10% in early trading following the announcement, taking its gains for the year to over 60%.

Investment director at AJ Bell, Russ Mould, added: "Rolls-Royce has delivered one of the most impressive turnarounds in living memory. Reinstating the dividend is the cherry on top for investors who have backed the company in recent years, rewarded by significant share price gains and now some potential income on top.

"Strong free cash flow has helped to get debt under control, it is generating better returns on the money spent on the business, and it is on track to hit fairly ambitious targets. Raised full-year guidance for profit and cash flow and the imminent return of dividends shows there is considerable momentum in the business. 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.

"The share price has soared by 600% since October 2022, delivering the kind of returns that investors may only dream of. It’s certainly unusual for a company of its size to be able to produce such strong share price returns, but that just goes to show that Rolls-Royce was once stuck in a very deep hole and it has managed to climb back out."

---