The A2 Milk Company Ltd (ASX: A2M) share price has jumped 17% after giving an exciting FY25 update and revealed dividends are on the way.
A2 Milk FY25 update
The company said that trading in the 2025 financial year to date is “ahead of plan” and better than its previous guidance, primarily due to a significant increase in MVM external ingredient sales compared to last year and compared to expectations, due to higher global dairy trade prices, currency impacts and changes in the product mix.
A2 Milk also said that English-labelled infant formula sales and liquid milk sales are “slightly ahead of plan”.
It’s now expecting revenue growth in the mid-to-high single-digit year-on-year growth in FY25. Previous guidance was mid-single-digit growth. The EBITDA margin of FY25 is expected to be “broadly in line” with FY24.
Dividend policy
The company announced at its annual general meeting (AGM) that it has established a dividend policy.
It’s targeting a dividend payout ratio range of between 60% to 80% of net profit after tax excluding non-recurring and other items, in other words the normalised net profit.
It’s expecting to declare its first dividend in February 2025 and in line with the bottom end of the range, being 60% of normalised net profit.
The board of directors said it’s conscious of its significant cash balance, which is being prioritised for its “supply chain transformation, growth opportunities and risk mitigation.”
The board will continue to review capital management options which may result in further capital returns to shareholders, likely in the form of special dividends over time.
Leadership commentary
The chair of the board, Pip Greenwood said:
The a2 Milk Company has made considerable progress in developing its operating model and creating a more resilient business. Given this progress and our strong balance sheet position, the board believes the time is right to introduce a dividend policy that delivers sustainable cash returns to shareholders over time.
Final thoughts on the A2 Milk share price
It’s good to see the business will start paying a dividend, rewarding long-term shareholders.
Upgrading guidance is also an exciting development, though the share price increase is large for a relatively small change in the revenue guidance.
I’m curious to see if the company is able to continue its positive revenue trend beyond FY25, or whether it’s a short-term boost. The Chinese infant formula market is not exactly booming. After the jump of the A2 Milk share price, I’d rather look at other ASX growth shares.
