Why I think Rolls-Royce shares will pay a dividend in 2024

As the underlying business has recovered from the Covid-19 pandemic, shares in Rolls-Royce (LSE:RR) have recovered strongly. And that raises an important question about dividends. The firm’s said it won’t distribute cash to shareholders until it recovers its investment-grade credit rating. But after an upgrade from S&P Global, that might well be on the cards for this year. Despite Rolls-Royce having net debt 56% higher than in 2019, S&P Global upgraded the firm’s credit rating from ‘BBB-’ to ‘BBB+’ earlier this month. That puts the business in investment-grade territory. Moody’s and Fitch have also upgraded Rolls-Royce bonds recently. Moody’s rated the company’s debt ‘Baa1’ and Fitch classified it as ‘BB+’. Importantly, neither of these is an investment-grade rating – both are one tier below. But aggressive cost-cutting and resurgent demand for travel have put the business in a strong position. I think the question is therefore ‘when’ Rolls-Royce gets upgraded by Moody’s and Fitch, rather than ‘if’. And I wouldn’t be at all surprised to see it happen in the next few months. As said, Rolls-Royce has more net debt on its balance sheet than it did in 2019. But two metrics indicate strongly to me that the business is...

Read more