If I’d invested £1,000 in Rolls-Royce shares in 2012, here’s how much I’d have today

Rolls-Royce (LSE:RR) shares remain a top pick for many UK investors despite the trouble caused by the pandemic. Even institutional investors have maintained their sizable positions throughout the past couple of years. But is this loyalty warranted?

Let’s explore the past decade of returns to see whether an investment in this business has been wise historically. And if that story can change moving forward.

Investigating the performance of Rolls-Royce shares

As I’ve said numerous times, popularity does not guarantee a good investment. In fact, it’s often the opposite. In February 2012, Rolls-Royce shares were trading at around 240p. Today, the stock is closer to 121p. That’s half its value wiped out!

To be fair, a lot of this decline is down to the pandemic. But even before the price crashed in 2020, the stock was only trading at 234p. In other words, after eight years, Rolls-Royce shares basically hadn’t moved. Meanwhile, the FTSE 100 had gained around 24% over the same period.

So far, this doesn’t look like it was a wise investment. But let’s not forget the contributions from dividends. Say I invested £1,000 into the engineering business back in 2012. That would give me around 416 shares, excluding any transaction costs.

Since 2012, the company has paid out a whopping grand total of 39.68p per share in dividends. That means my £1,000 investment would have generated an income of £165.07, or a 16.5% return. When combined with the share price movement, I’d now have a disappointing £669.24. And even before the pandemic started, I’d still be losing to the market.

Of course, past performance is not a good indicator of future results. So can Rolls-Royce shares change their lacklustre returns moving forward?

A lucrative long-term investment?

It’s no secret that the pandemic has decimated the travel sector. And since around half of Roll-Royce’s revenue stream comes from selling and servicing civil aircraft engines, this has had a pretty drastic knock-on effect for the business.

But there’s a possibility that Covid-19 may have been a positive influence. To weather the storm, the company is undergoing a pretty extensive structuring that trimmed a lot of fat from operations, opening the door to higher efficiency.

The group is by no means in tip-top shape when looking at the balance sheet. But with large chunks of non-core assets being sold off, cash flows are expected to improve that can be used to reduce its leverage.

The competitive arena of the engineering sector does pose some challenges. But with such high barriers to entry, it’s unlikely management isn’t already aware of the main threats to the business and can act accordingly to mitigate any potential risks.

Of course, suppose the pandemic decides to punch the travel sector in the face again? In that case, the recovery of Rolls-Royce shares could take a lot longer than expected. Personally, I want to wait until the Covid-19 situation is over before considering this business for my portfolio. But I am cautiously optimistic about its long-term prospects.

Zaven Boyrazian 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.