A2 Milk Company Ltd (ASX: A2M) shares are set to close 2024 on a strong note. The stock has been up more than 36% this year.
Shares in the specialist milk company currently fetch 5.81 apiece after surging more than 5% in the past month of trade.
Zooming out, several catalysts are behind this rally in 2024, including an upgraded earnings guidance and the announcement of its first-ever payout policy.
So, with 2025 just around the corner, can A2 Milk shares maintain this momentum? Let's see what the experts think.
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Guidance upgrade boosts confidence
A2 Milk shares caught a strong bid in November after the company provided a trading update at its annual general meeting. Put simply, the news was better than expected.
The company reported that revenue for the first half of FY25 has exceeded initial forecasts.
Management put this down to higher global dairy prices and the sale of more high-value products during the early periods of FY25.
The update also showed that its English-label infant formula and liquid milk sales are both tracking slightly ahead of initial forecasts.
Given the stronger-than-expected performance, management reckons A2 Milk will perform better than originally expected next year.
It has revised forward guidance upward, now forecasting "mid-to-high single-digit revenue growth" this financial year. Previously, it had forecast "mid-single-digit growth".
Dividend delights for A2 Milk shares
Whilst the company has sprung out of the blocks in FY25, perhaps the biggest driver of excitement around A2 Milk shares is the introduction of a dividend policy.
For the first time, the company plans to distribute between 60% and 80% of its net profit to shareholders.
The first interim dividend is scheduled for February 2025, with a payout ratio of 60%.
According to The Motley Fool's James Mickelboro, if this policy had been in effect for FY24, shareholders would have received a dividend of 12.6 cents per share.
Analysts are bullish on A2 Milk shares
According to CommSec, the consensus of analysts is that A2 Milk is a buy. This is made up of eight buy ratings and eight hold ratings.
Citi is in the bullish camp. According to James Mickelboro of The Motley Fool, the broker rates A2 Milk shares a buy. It also raised its price target to $7.15 on the stock.
The broker pointed to several long-term catalysts for A2 Milk. These include improving birth rates in China, its increased market share, and the company's financial strength.
Citi also revised its revenue and earnings estimates upward for FY25. It says a projected 15-cent dividend would make the stock even more attractive to income investors.
The combination of growth potential and dividends positions A2 Milk shares as one to take a closer look at in 2025, in my view.
Foolish takeout
A2 Milk is set to finish the year on a strong note. But competition in the infant formula market and fluctuations in global dairy prices could still play a part.
Despite this, brokers are bullish on the stock and reckon it's well-positioned for a strong year in 2025.
Time will tell what eventuates from here.
