Rheinmetall’s Record Backlog and Naval Ambitions Fail to Halt Ex-Dividend Rout

Rheinmetall’s shares tumbled to a fresh 52-week low of €1,104.20 on Wednesday, undone by a combination of technical dividend adjustment and growing market unease about near-term execution. The stock shed more than 5% on the day it began trading without the right to the company’s newly approved payout, leaving investors nursing a loss of nearly 19% over the past seven sessions.

The dividend itself was anything but meagre. Shareholders voted at Tuesday’s annual general meeting to raise the distribution by 42% to €11.50 per share, up from €8.10 last year. That translates to a total outlay of €369m, due to be paid out on 15 May 2026. Yet the generous increase did little to lift sentiment, as the closing price on Tuesday of €1,162.40 had already matched the stock’s previous 52-week nadir.

Q1 numbers fail to reassure

The market’s wariness stems largely from the first-quarter results, which missed expectations on both the top and bottom lines. Revenue rose 8% to €1.94bn, but that came in around €300m short of analyst forecasts. Operating profit increased 17% to €224m, still below estimates. More alarming was the free cash flow, which swung to minus €285m, weighed down by heavy investment and lower customer advances.

Should investors sell immediately? Or is it worth buying Rheinmetall?

Management has kept its full-year guidance intact, targeting sales of €14.0bn to €14.5bn and an operating margin of roughly 19%. The second quarter is expected to show a marked acceleration, with the benefit of delayed deliveries and a stronger order intake. But the sceptics are not convinced. Warburg analyst Christian Cohrs slashed his price target from €1,700 to €1,550, while JPMorgan downgraded the stock from Overweight to Neutral, citing risks around execution and the product mix.

From panzers to full-spectrum supplier

Under chief executive Armin Papperger, Rheinmetall is pursuing an aggressive diversification strategy that extends well beyond its traditional armoured-vehicle business. The group has created a new “Naval Systems” segment after acquiring stakes in Naval Vessels Lürssen, giving it control over maritime projects worth €5.5bn. It is also pushing into cruise missiles with the planned “Ruta 2” model, boasting a range of up to 700 kilometres and AI-supported targeting. A joint venture with ICEYE to produce SAR satellites and a €1.7bn contract for the SPOCK-1 programme round out the expansion push.

The ambition is to become a European full-range defence house. Yet the market is demanding proof that this strategy can convert a record order backlog into cash. At the end of March, the backlog stood at €73bn, and management aims to swell that to €135bn by year-end. A key test will be the second quarter: if the company can turn its inventory build-up into strong cash generation and deliver on the promised revenue acceleration, the current deep discount — the average analyst price target of €2,011 implies a 63% upside — may begin to close.

For now, the stock remains under pressure. The 200-day moving average is 30% above the current price, and the year-to-date loss has reached 27%. Even as Rheinmetall showcases its Lynx KF41 infantry fighting vehicle and Oerlikon Skynex air-defence system at the BSDA fair in Bucharest, investors are waiting for the numbers to catch up with the narrative. The high dividend, while welcome, offers little comfort when the path to the annual targets looks increasingly steep without a swift operational rebound.

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