DroneShield Ltd (ASX: DRO) shares have been a top performer this year, soaring 236% into the green to fetch $1.24 at Tuesday's close.
The giant leap in market value is underpinned by equally strong growth in DroneShield's underlying business. Sales are up heavily, and the company has raised capital to fund its growth operations.
With the company gaining traction in the counter-drone technology sector, some investors are undoubtedly asking an important question: Will DroneShield start paying dividends soon?
Let's take a look.
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Are DroneShield shares on track for dividends?
While DroneShield has made significant strides – including 40% increase in customer cash receipts in FY24 – the company remains firmly focused on growth.
As such, it's unlikely that investors will see dividends from DroneShield anytime soon.
Instead, the company is reinvesting its profits to drive expansion, particularly in research and development (R&D) and new product launches. This will impact the market value of DroneShield shares.
This is not uncommon for a company in growth mode. Corporate finance tells us that companies should only pay a dividend when the opportunity to retain and reinvest the cash at high rates of return is unavailable.
Alternatively, if there is scope to retain cash from shareholders to plough back into the business to grow assets, sales and earnings – we can typically expect this to occur.
DroneShield reported record revenue growth in its half-year results, with sales up 110% year-on-year to $24.1 million.
However, it posted a net loss of $4.8 million for the same period, primarily a result of increased operational expenses but also due to these large R&D investments.
So, with the company still in its growth phase, management's priority is clear: Reinvest and expand globally rather than distribute profits to shareholders for now.
What about the future?
DroneShield shares have performed well in recent months, driven by growing global demand for counter-drone solutions, particularly in the defence sector.
The company has secured a sales pipeline worth more than $1.1 billion and has a contracted backlog of $32 million.
This pipeline positions DroneShield well for future growth, but it also means the company is funnelling its resources into scaling up operations rather than returning capital to shareholders via dividends.
Additionally, DroneShield raised $235 million earlier this year, bolstering its balance sheet to support further expansion.
This cash will primarily fund R&D and increase its presence in key markets like Europe, the United States, and Asia.
While this positions the company for long-term success, it also reinforces my view that dividends will not be on the radar for some time.
Foolish takeaway
DroneShield shares offer significant growth potential, but it's clear that dividends are not on the horizon for now.
Instead, the company will retain and reinvest its surplus cash to fund its growth initiatives. The stock is up 337% in the past 12 months.
