Royal Mail is to make a one-off dividend payment to shareholders after the online shopping boom during the Covid-19 pandemic boosted its parcel delivery business, in a dramatic turnaround of the company’s fortunes.
Royal Mail expects to make an adjusted operating profit of £700m for the year to the end of March, more than double last year’s £325m. This has given it the confidence to pay a final dividend of 10p a share on 6 September, the first payout to shareholders since January 2020. It will set out a new dividend policy when it publishes its full-year results on 20 May, the company said.
Since floating on the stock exchange in October 2013, Royal Mail had been struggling with its traditional letters business, which is in decline. Attempts to restructure the company led to prolonged battles with unions. However, it has focused on expanding its parcel delivery business, as online shopping soared during the Covid-19 crisis, when many shops have been forced to shut during lockdowns.
Richard Hunter, the head of markets at the trading platform Interactive Investor, said: “The astonishing reversal of fortunes at Royal Mail continues as the momentum of bumper Christmas trading has spilled over into the new year.
“Challenges remain, however, and the group will need to be alert. Competition is particularly fierce in the parcels business and it is not yet clear whether the current volumes are at a temporary peak as customers have been driven to online shopping from their homes during the pandemic.”
The share price of the FTSE 250 listed firm has more than quadrupled in the past year, to 520p, up 2% on Tuesday. Hunter said Royal Mail would be a strong contender to regain its FTSE 100 status at the next reshuffle of the index.
As well as investing in its UK Parcelforce division, Royal Mail sees growth opportunities abroad. Its GLS international parcels arm is expected to make an operating profit of €390m (£350m) for the past year; it is forecast to rise to €500m by 2025.
Hargreaves Lansdown analyst Nicholas Hyett described GLS as “the jewel in Royal Mail’s crown”. He said: “If the UK business could emulate its international cousin the group would be home and dry. Instead the UK is suffering after a period of chronic underinvestment, and the capital expenditure needed to make up the shortfall looks set to eat into shareholder returns for years to come.”
The company recently started trialling a Sunday parcel delivery service for several big UK retailers. Rivals DPD and Hermes already make Sunday deliveries for retailers such as Amazon.