Shares in Rolls-Royce rocketed this morning after it posted a 57% surge in profits and confirmed its first dividend in five years, alongside a £1 billion share buyback.

The aero-engine maker, which has enjoyed a stellar recovery since the pandemic, is set to pay a higher-than-forecast 6p a share, equivalent to 30% of underlying profit to £2.5bn, sharply up from £1.6bn last time.

Its margin of 13.8% reflects “the impact of our strategic initiatives, commercial optimisation and cost efficiency benefits”.

Shares rose 15.94% or 100.6p to close at 731.6p after hitting 761p earlier in the session.

Guidance for this year is for £2.7 billion to £2.9 billion for both underlying operating profit and free cash flow meets as the company delivers its mid-term targets two years earlier than planned.

Chief executive Tufan Erginbilgic said: “Strong 2024 results build on our progress last year, as we transform Rolls-Royce into a high-performing, competitive, resilient, and growing business. All core divisions delivered significantly improved performance, despite a supply chain environment that remains challenging.

“We are moving with pace and intensity. 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.

“Significantly improved performance and a stronger balance sheet gives us confidence to reinstate shareholder dividends and announce a £1bn share buyback in 2025.

“Our upgraded mid-term targets include underlying operating profit of £3.6bn-£3.9bn and free cash flow of £4.2bn-£4.5bn. These mid-term targets are a milestone, not a destination, and we see strong growth prospects beyond the mid-term.”

Market reaction

Russ Mould, investment director at AJ Bell, said: “There was always a risk that Rolls-Royce’s recovery story would lose momentum as it runs out of easy wins. Its latest results and upgraded guidance show that is not the case.

“It’s no longer about stabilising the business; the narrative has shifted to growth and Rolls-Royce is making solid progress. A £1 billion share buyback is akin to Rolls-Royce sticking its head out the window of a moving car on a warm summer’s day, enjoying the ride and knowing everything is going well.

“The company is ahead with its targets for operating profit and free cash flow, which is impressive. Orders are piling up for areas like small modular reactors and submarines.

“It continues to invest in the business to grow capacity, capture more business in the future and most importantly, make its products more useful for customers. This includes a new blade which should last longer and upgrading an engine to improve fuel efficiency.

“It expects bigger profit margins across its core markets of civil aerospace, defence and power systems.

“Rolls-Royce is delivering every bit of good news imaginable, and it’s no wonder the share price has hit a new record high.”