Will Woodbois ever pay a dividend?

Could the prospect of eventual Woodbois dividends make our writer consider the shares for his portfolio? Not yet — here’s why.

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Penny share Woodbois (LSE: WBI) has been attracting the attention of some investors lately. It has barely moved in the past year, inching up just 1%. But if its timber operations grow, could buying the shares now mean I ever benefit from Woodbois dividends in future?

Why there’s no Woodbois dividend for now

At the moment, Woodbois does not pay a dividend. That is not surprising. Dividends are normally paid from profits. Until last year, Woodbois was not profitable. Although it did make a pre-tax profit from continuing operations last year, a lot of that was due to a non-cash accounting gain.

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Last year’s financial report from the company did describe the management team as “highly incentivised to deliver more” and set out an aspiration “when expedient, to permit payment of dividends”. So the idea of Woodbois dividends is something the company’s management is thinking about, at least.

Growth priorities

However, an aspiration to pay a dividend is just that – an aspiration. It does not mean that any dividend will actually be paid in the future.

For that to happen, typically management would need to feel comfortable that a company’s profits and cash flows enabled it. I do think this could possibly happen at Woodbois down the line. For now, it remains in a fairly early stage of operations. It has invested in things it needs for its business, such as forestry, a sawmill and a factory.

Over time, the large initial expense associated with setting up operations will hopefully be replaced by smaller running costs. Meanwhile, those facilities could allow an increased output of timber products. That could boost revenues and help make the company profitable in future years.

That might not happen though. It could be that the costs of doing business in Gabon eat into Woodbois’ profit margins. There are other risks too, such as high shipping costs hurting profit margins. Even if Woodbois does become consistently profitable, it may choose not to pay a dividend.

It could instead put profits back into the business, for example by buying more woodland or building another factory. That could help the business grow further, so may be more attractive to directors than starting to pay a dividend.

I’m not waiting for Woodbois dividends

There are lots of companies that already use regular profits and free cash flows to pay a dividend. So, from an income perspective, I do not see Woodbois as an attractive potential addition to my portfolio.

If Woodbois develops its business enough and profits increase, it could end up paying an attractive dividend years from now. Buying forests today is something that may show a reward as they mature over coming years. But although that could happen, it is not guaranteed.

The prospect of even a modest Woodbois dividend still seems some distance away, in my opinion. So if I wanted to boost my passive income streams now, I would instead invest my money in dividend shares that are already making payouts.

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Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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