The luxury car manufacturer Aston Martin (LSE: AML) sells thousands of vehicles a year – and none of them comes cheaply. That might sound like a recipe to make chunky profits, which could be shared with shareholders. But, so far, that has not been the case. There has not been any Aston Martin dividend to shareholders since the company listed on the stock market in 2018.
Could that change in future?
The economics of the business
Any business has what is known as a top line and a bottom line. That terminology refers to places in the company accounts. The top line basically shows a firm’s annual revenues. The bottom line is calculated by deducting a variety of costs from that top line, so it shows a profit or loss.
A business like Aston Martin ought to have a beefy top line. After all, its products are expensive and it sells a decent number of them. Last year, the firm’s revenues were around £1.1bn. That was 79% higher than the year before, reflecting a big jump in the number of cars sold.
But what about the bottom line? It showed a £214m loss. That was 54% smaller than the prior year, but still a significant loss. Despite booming sales, Aston Martin was unable to turn a profit.
Balance sheet woes
The reason for that is clear, looking at the items between the top and bottom lines on Aston Martin’s annual accounts. Even at the operating level, the business was lossmaking. But that loss — £77m — was under a quarter of what it had been the year before.
At around £137m, the gap between the operating loss and total loss was substantial. That is due to non-operating costs. These include items like financing charges, such as interest payments.
In the case of Aston Martin, those costs are large. In recent years it has borrowed heavily. The carmaker ended the first half of this year with almost £1.3bn of net debt on its balance sheet. Servicing such borrowings can be expensive. Indeed, it means that even if the firm was to turn a profit at the operating level, it might not actually generate money to pay out to shareholders in the form of a dividend. That is because non-operating costs continue to hurt its bottom line.
I’m not expecting an Aston Martin dividend soon
The company has taken steps to reduce that debt, for example by issuing new shares this month. That helped it raise more funds.
The company has said it expects to become cash flow positive in 2024. It also expects to increase revenue to £2bn by 2024-25. If it can achieve those ambitious targets, the firm may start generating spare funds. An improving financial performance could enable an Aston Martin dividend to be paid.
However, there is no guarantee that will happen. The company has so far been a cash pit for shareholders. Its share price has slumped 80% in the past year alone.
A lot of things have to go right before an Aston Martin dividend could be paid. I see real risks that business performance will not be strong enough for that to happen in the next several years. I have no plans to buy the shares for my portfolio.