Could an investment in Rolls-Royce shares make me rich?

Rolls-Royce (LSE: RR.) Shares have been a poor investment for the past half decade. Investors who entered their positions five years ago would have lost 66% today. Ouch.

But the stock has since soared through 2023, gaining 8% year-to-date. It has been the top accolade FTSE 100 riser during the first trading day of the new year.

So, can investing in aviation and energy technology pioneers make me rich? Here I am.

Improve investment prospects

Civil aviation is the lifeblood of the Rolls-Royce business. The company is sensitive to the demands of international travel. This has had a significant impact on orders from customers, including Footsie airlines IAGwhich owns British Airways brand.

In this context, I am encouraged that the global travel market is recovering quickly, according to the latest data from the International Air Transport Association (IATA). In November, total air traffic reached 75.3% of pre-pandemic levels worldwide. That’s a 41% increase from 2021.

Another tailwind for Rolls-Royce’s share price is rising defense spending in developed countries, prompted by security concerns arising from the war in Ukraine.

The company’s defense arm generates nearly a third of its underlying revenue by 2021. High geopolitical tensions should continue to support defense demand in my view.

Another major division, power systems, benefits from “very strong order book“, according to the latest trading update. Rolls-Royce highlights “record order intake“for 2022 and”Good revenue cap for 2023 and beyond“. This sounds promising.

The power systems unit develops climate-neutral solutions for standby power used in safety-critical plants and integrated drive and propulsion systems for ships and heavy-duty land vehicles.

Risk

I am concerned about the mountain of debt on the aerospace giant’s balance sheet. The drawn debt totals £4bn, maturing between 2024 and 2028. This could limit the company’s growth prospects in the coming years.

The main condition of the debt payment requirement is the limitation of dividend payments until 2023. The last company to send a shareholder distribution before the pandemic.

While Rolls-Royce can in theory recommence the dividend this year, I expect it will be reduced yield – if any. This is not a stock that can be bought for passive income that is useful anytime.

I’m also concerned that the company’s cost-cutting measures during the pandemic could hinder its ability to meet production demand going forward. If so, this could lead to a significant recovery in the share price.

Can Rolls-Royce shares make me rich?

Although there are better prospects for Rolls-Royce shares, I understand that the company has a history of disappointing investors. Having said that, I see a lot of potential upside, as well as some significant risks.

So, I will consider the expectation of profit from the investment. I’m happy to settle for a respectable return instead.

A Rolls-Royce is probably not my golden ticket to glorious riches. However, I think the stock is a good buy for a diversified portfolio. Hopefully the business can break the pattern of negative returns and the positive momentum can be sustained.

I would prepare for the worst and be surprised if the stock can charge back into 2023 and beyond. Wish me luck!