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Why Doesn’t Nikola Corporation Pay Dividends?

Nikola One. Source: nikolamotor.com

Nikola Corporation (NASDAQ:NKLA) is an emerging automobile company that designs and manufactures state-of-the-art battery-electric and hydrogen fuel cell electric vehicles, electric vehicle drivetrains, energy storage systems and hydrogen fueling stations.

The company has only started trading its common stocks with the ticker NKLA in June 2020 with a base price of $10 dollars.

Nikola Corporation’s peers and competitors include automobile companies such as Tesla, Ford and General Motors.

According to the company’s latest quarterly filings dated June 30, 2020, it does not pay a dividend. Here is an excerpt extracted from the 2Q 2020 filings regarding Nikola’s dividend policy:

  • Expected Dividend Yield – The dividend rate used is zero as the Company does not have a history of paying dividends on its common stock and does not anticipate doing so in the foreseeable future.

In other words, Nikola Corporation will retain all the profits and cash generated from business operations, if there is any. As such, Nikola’s investors can only expect to make a gain from the price appreciation on the common stocks.

There are a number of reasons that the company does not pay dividends.

In this article, we are going to find out why Nikola Corporation does not pay a dividend while other automobile companies such as Ford and General Motors have already been paying dividends for a considerable amount of time.

Without further ado, let’s dive in!

Nikola Corporation’s Total Revenue

Nikola revenue

Nikola revenue

Let’s first look at the company’s historical revenue or sales to find out about Nikola’s growth.

Based on the chart above, Nikola’s total revenue was only $36,000 in the latest quarter of 2Q 2020, which was way too low for a company with a market cap of more than $10 billion dollars.

In fact, all of that revenue reported in 2Q 2020 quarter came entirely from the “solar revenue” which according to Nikola, was related to solar installation service projects.

Nikola stated that solar installation projects are not the company’s primary operations and are expected to be discontinued soon.

In other words, Nikola does not currently have any sales related to its core operations which primarily consist of the manufacturing and sales of electric vehicles.

Instead of designing and building battery-electric vehicles, Nikola is installing solar panels to make money.

If Nikola is not generating any sales, how in the world can the company pay out a dividend?

Besides, dividends are not paid out from revenue but from profits and free cash flow which we are going to look at in subsequent discussion.

Nikola Corporation’s Gross Profitability

Nikola gross profit

Nikola gross profit

The chart above shows Nikola’s gross profit in 2020.

Accordingly, Nikola’s gross profit was only $6,000 in Q2 2020 which was also way too little for the company to pay out as a dividend.

Moreover, the respective gross profitability was generated entirely from the solar installation revenue which was not related to any of Nikola’s core operations.

From the gross profitability result, Nikola can’t afford or just does not have the means to be initiating an investor-friendly dividend policy now.

Nikola Corporation’s Operating Income

Nikola operating income

Nikola operating income

In terms of operating income, we can see that Nikola made a loss in 2020 2Q.

Nikola’s loss totaled $87 million as shown in the chart above.

Since the company has made a loss, Nikola certainly can’t pay out a dividend out of losses.

Additionally, Nikola will probably be persistently making losses in the foreseeable future considering that its 1st battery-electric truck will only be available by the end of 2021 and the production of fuel cell EV trucks will only start in 2023.

Here is an excerpt extracted from the 2Q 2020 quarterly filings regarding Nikola’s production and delivery pipeline:

  • FCEV Trucks
    Approximately twelve months from commercial production in second half of 2023, we plan to require existing and
    new FCEV reservations to become binding with deposits. As of June 30, 2020, we had approximately 14,000 reservations for FCEV trucks, of which up to 800 trucks are subject to a binding commitment with Anheuser Busch LLC. These reservations are cancellable until the customer enters into a lease agreement, or in the case of Anheuser Busch, to the extent our trucks do not meet the vehicle specifications and delivery timelines specified in the contract.

    BEV Trucks
    We only accept binding orders with deposits on BEV trucks, which are negotiated on a case by case basis since the expected delivery is in the late 2021.

In short, Nikola has no profit to pay out a dividend now, as the 1st product will only be available by the end of 2021.

Nikola Corporation’s Net Income

Nikola net income

Nikola net income

Again, Nikola suffered an even greater loss in terms of net profitability.

According to the chart above, Nikola’s net income totaled as much as -$100 million.

In other words, the company has lost $100 million in 2Q 2020 alone.

There is no way for Nikola to initiate a dividend-paying policy now when it has lost $100 million in a single quarter.

Nikola Corporation’s Earnings Per Share (EPS)

Nikola earnings per share

Nikola earnings per share

On a per-share basis, Nikola’s EPS was -$0.33 in 2020 Q2, illustrating the extent of the loss that the company is having now.

From the earnings per share perspective, Nikola is fundamentally incapable of starting a dividend policy now.

Nikola Corporation’s Free Cash Flow

Nikola free cash flow

Nikola free cash flow

Cash is the most important determinant when it comes to dividend-payment for a company.

Particularly, free cash flow is the metric that most investors use to measure the ability of a company to consistently pay out a dividend.

As seen from the above chart, Nikola’s free cash flow in the 1st 6 months ended on June 2020 totaled -$52 million.

The negative free cash flow means that the company’s cash flow from operations wasn’t sufficient to cover the company’s operating and investing expenditures.

Since dividends are paid out of cash, Nikola has no cash to spare for dividends.

The company’s cash flow can’t even fully cover its business operations, let alone a dividend payment.

Summary

From all the analysis that covers from revenue to net profit to free cash flow, Nikola Corporation has no profit nor the required free cash flow to start paying a dividend now.

Nikola does not even have any sales related to its core operation as of 2020 Q2.

Besides, Nikola’s losses will most likely persist in the foreseeable future, judging from the fact that its 1st BEV truck will only be available by the end of 2021.

In short, investors of Nikola’s common stocks can only hope for a price appreciation.

For now, investors should not expect Nikola to pay out a dividend, not until when the company has its 1st BEV truck delivered in 2021.

Until then, we will look at the company’s fundamentals again to see how it performs in terms of profitability and free cash flow.

References and Credits

1. Financial figures in all charts on this page were obtained and referenced from the annual and quarterly filings available in NKLA Earnings Presentations.

2. Featured images in this article are used under creative commons license and sourced from the following websites: Nikola One and Money.

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