Rolls-Royce Shares: Dividend Forecast for 2026 and Beyond
Rolls-Royce Holdings PLC (LSE: RR.) is witnessing a significant turnaround, with dividends expected to rise substantially in the coming years. After a challenging period marked by the COVID-19 pandemic, the company has resumed dividend payments, with a forecast for growth through 2026 and beyond.
Recent Dividend Developments
The company started distributing dividends again in 2024, after a hiatus that began in 2020. At its 2014 peak, Rolls-Royce was distributing a full-year dividend of 7.93p per share. However, minor cuts had already begun prior to the pandemic, leading to a complete suspension of dividends during the crisis.
Future Dividend Forecasts
By the end of 2024, Rolls-Royce’s stock had surged more than 700%. The dividend was reintroduced at a rate of 6p per share. An interim dividend of 4.5p has been confirmed for 2025, indicating that future dividends could see significant increases.
- 2025 Dividend Forecast: 9p per share
- 2026 Dividend Forecast: 10.6p per share
- 2027 Dividend Forecast: Approximately 12p per share
Company Performance and Market Conditions
Chief Executive Tufan Erginbilgic has been instrumental in the company’s recovery. Rolls-Royce has benefited from a resurgence in global air travel and increased defense spending. Profit margins have improved across both civil aerospace and defense sectors.
Analysts predict that earnings per share (EPS) could reach 26p in 2025, resulting in a payout ratio of about 33%. This projection suggests that dividends are well supported and that there is potential for further growth, provided performance continues on its current trajectory.
Risks and Investment Considerations
Despite positive forecasts, there are risks associated with Rolls-Royce’s dependency on broader economic conditions. Key factors affecting the company’s performance include:
- Global air traffic recovery
- Defense budgets
- Supply chain stability
A downturn in any of these areas could negatively impact earnings. Additionally, while the anticipated rise in dividends—from 6p to nearly 10p over two years—is notable, the current share price reflects much of this expected recovery, leading to a low yield of around 1%.
Income-seekers typically prefer yields exceeding 3% or 4%, which may make Rolls-Royce less appealing unless the share price adjusts downward. For investors hoping for immediate high income, potential disappointments may arise at current levels.
Conclusion
Rolls-Royce presents an intriguing opportunity for existing shareholders, with promising dividend forecasts on the horizon. However, prospective investors should be cautious, as entry at current levels may not provide the immediate income they seek. Overall, those looking to enhance their average portfolio yield may find more attractive dividend opportunities across the London Stock Exchange.
