The online accounting software company Xero Limited (ASX: XRO) has long been a market darling here on the ASX boards. Xero shares have risen from under $20 five years ago to the $115.18 they are commanding today (at the time of writing). That's a five year gain of 540%. That's notwithstanding the rather flat year Xero has had more recently though.
Over the past 12 months, Xero shares have gone backwards by roughly 11.8%, including the 21.5% the shares have lost over 2022 thus far. Still, Xero has been one of the best growth shares to own on the ASX over the past five years, which earned it a place in the once-famed WAAAX group.
Xero's share price growth has arguably been fuelled by this company's stunning growth numbers. Just two months ago, Xero reported its half-year results for the six months ending 30 September 2021. The company reported a 23% increase in both revenues (to NZ$505.7 million) and subscribers (3 million), as well as a gross margin of 87.1%.
So numbers of this calibre might elicit a question: why isn't Xero paying its loyal investors a dividend? As most investors would be aware of, dividends are quite a common occurrence on the ASX boards. ASX shares that don't pay a dividend are relatively rare. Especially well-known ASX 200 names like Xero.
So let's see why Xero hasn't shown investors the money just yet.
Xero cash: Where are the dividends?
So digging deeper into Xero's results, and we might get our clue. In November, the company also reported earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$981 million. That was down 19% compared to the previous year's corresponding half. But Xero also reported a net loss of NZ$5.9 million for the period.
This indicates that Zero is still very much in its 'growth phase' of development, and is continuing to plough its revenues back into the business for future growth. As such, it's arguably the case that Xero's management sees better value in reinvesting its cash into the business, rather than sending it out the door in the form of a dividend.
So on the above numbers, it's possible that Xero could afford to pay its investors a dividend. It did report positive earnings, after all. But that's not what the company appears to be focused on. If Xero continues to grow its revenues and subscribers at something even close to the numbers it reported in November for the next few years, then a dividend is a distinct possibility one day. But for now, it seems that management's priorities lie elsewhere.
At the current Xero share price, this company has a market capitalisation of $17.2 billion.