AIM Shares With Dividends That Are Bouncing Back

3rd Sep '21 by Ben Hobson

14 comments 4620 reads

Dividend investors have had a tough time over the past 18 months. With pandemic uncertainty unleashing a wave of payout cuts through the market, it’s been difficult to know how and when companies and industries would start to recover.

New research shows that dividends are now coming back - and payouts from companies on the Alternative Investment Market (AIM) in particular, have proved to be surprisingly resilient.

While AIM dividends only represent a fraction of the overall market payout, they are highly valued by investors. With AIM stocks, the presence of a dividend can be a useful pointer to more mature and perhaps well managed and well financed companies. Indeed, the resilience of some of these payouts over the past year is a reminder of why AIM dividends are worth taking seriously.

Dividends cuts across the market

During the first four quarters of the Covid crisis (April 2020 and March 2021), dividends on the Main Market fell by 41.6%, according to analysis by Link Asset Services. At the time, it was a stinging blow for those investors reliant on them. Over on AIM the decline was actually slightly better, at just 40.4%.

At first sight, this similar reduction in payouts between the two markets seems surprising. While many companies took action to protect their finances as the pandemic developed, AIM stocks tend to be smaller and more vulnerable to economic shocks. So you might have expected to see AIM dividends fall further. But it wasn’t just the size and financial strength of companies that determined the overall reduction in payouts.

According to Link, the five largest dividend payers on the Main Market generally contribute around 35% of the total paid. This was a problem when Covid hit because four of those top payers - Shell (LON:RDSA), HSBC (LON:HSBA), BP (LON:BP.) and Rio Tinto (LON:RIO) - all cut or cancelled their payouts. Between them, they accounted for 43% of the fall in UK dividend payouts between April 2020 and March 2021.

By contrast the top five dividend payers on AIM are only responsible for 17% of the payout. And between them, they contributed less than one fifth of the fall, which was broadly in line with their overall share of total AIM dividends.

A brighter outlook

Evidence from the latest payout research suggests that dividends on AIM are now in recovery mode. Between April and June, underlying dividends rose…

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gus 1065

3rd Sep '21

Hi Ben.

Interesting write up. Thanks for this. I suspect I’m like many PI’s who tend to neglect/ underestimate the beneficial impact of regular dividend income. The money comes into my brokerage account without really being tracked other than for the annual tax return. Dare I say part of this is down to the inability to easily follow dividend income in the Stocko portfolio tools without a lot of manual input.

For those interested in consistent income streams, also worth looking at some of the established Investment Trusts. The AIC website has a page of designated Dividend Heroes that have consistent dividend payment growth over a number of years.

https://www.theaic.co.uk/incom...

Top of this particular pile is City Of London Investment Trust (LON:CTY) . Currently has a yield of 4.79% and has increased dividends every year …. for the past 55 years.

Gus.

dmcarver

Perhaps Somero is not here for a reason which escapes me?

1MCF

Somero Enterprises Inc (LON:SOM) doesn't meet the dividend cover or forecast dividend growth aspects of the screen. You can view this in the checklist feature at the bottom of the screen. https://www.stockopedia.com/ch...

ken mitchell

Only 2 replies show why there are some extraordinarily high dividends available to investors right now. Most don’t seem to realise!

Usually dividends above around 6% suggests it might not be affordable with a cut likely. But at present dividends of 10% and more are sometimes getting increased. My portfolio is full of these exceptional dividend payers. They’re providing significant income and capital gains. And if/when investors cotton on to this exceptional income being available while interest from savings accounts are minimal, the share prices could take off.

Agree with Gus that there are some high quality big dividend paying Investment Trusts e.g among Commercial Property Trusts and nearly 8% from Henderson Far East Income Trust. BUT I’m not a great fan of the “dividend heroes.” 2 reasons:

1. The share prices have multi bagged over the years so actual dividend income from them is often modest.

2. Sometimes the annual increase is just a tiny fraction of 1p. Also better to look now for big Investment Trust dividend payers at significant discounts to NAV and with potentially more share price upside than many of the dividend heroes.

As for shares;-it’s not just AIM and anyway there are some much bigger dividend payers than those in that list in Ben’s excellent article.

E.g I bought Base Resources (LON:BSE) a couple of days ago at 17.5p after their extraordinary dividend news!

It’s about 2p. That’s on top of an earlier big dividend this year. . Dividend yield is 22%. BASE gets 89 for value and 90 for quality. Ex dividend this coming Thursday and pay day 29th September.

Here are a few others. £RIO. 13% including specials. Stocko 98.

Ferrexpo (LON:FXPO) 13% Stocko 99.

Evraz (LON:EVR) 14% Stocko 99

Steppe Cement (LON:STCM) 9.8% Stocko 97

M&g (LON:MNG) 9%. Stocko 72 and 96 value. Share has fallen 20% to April low.

Aviva (LON:AV.) 5.6% bit promise of annual increases and £4 billion spare cash soon.

Legal & General (LON:LGEN) 6.9% and annual increases expected.

Somero Enterprises Inc (LON:SOM) about 10% with specials. Results next week.

INVESTMENT TRUSTS.

As well as those REITS Henderson Far East Income (LON:HFEL) nearly 8%. But note Henderson Far East Income (LON:HFEL) has significantly underperformed other Asian Trusts paying smaller dividends.

There are plenty more including on AIM.

Kevin Holloway

interesting thoughts thanks. If it wasn't for my sipp dividends I'd be close to a loss this year...

Sharemaster

4th Sep '21

I have Wentworth Resources (LON:WEN) paying 7.16%. Good interims reported on 2nd Sep 2021. Interim divi of 0.52p ex 9th Sep 2021 payment date 8th Oct 2021. Final next year expected to be 1.55p (up 10%). Good cash reserves of £17.8m.

timarr

I've never really understood buying shares as a class based on dividends. Company earnings can be reinvested or paid out in dividends - all things being equal a company that reinvests its earnings will grow faster. Things rarely are equal, of course, and there are plenty of good companies that pay dividends and plenty of poor ones, too. Ditto with non dividend payers.

Using dividends as a sign of company strength is also a bit odd, surely free cash flow would be better?

In general I buy shares on AIM because I want to trade on the small cap factor - smaller companies, as a class, provide higher returns because they can grow faster as they start smaller. And these days most smaller companies are on AIM. For preference I'd rather they reinvested their earnings rather than giving me small amounts back that I then have to make another investing decision about.

I hold Property Franchise (LON:TPFG) and Watkin Jones (LON:WJG) from the above list and plenty more besides. But I don't hold them, or anything else, for the dividends.

GN100

I buy AIM as well as FTSE250 and 100 shares and will take my profits wherever I can get them - dividend or Capital Gain. With some of the AIM shares the EMS and also the liquidity gives me some concern. I would like to reduce the number of holdings I have acquired as it's difficult to follow them all closely but that would mean holding well above the EMS at times. If the market takes a hit then it can be very difficult to get out. I remember Paul Scott said he experienced this during the banking crisis.

Though agreeing with some of your comments are you taking in to account:-

1. How unusually high current dividends are? And this with interest rates on savings accounts at record lows. If only financial education was better so many pensioners who have bemoaned the pathetic rates in their savings accounts could have bought quality dividend paying Investment Trusts around the crash lows in 2008 and again in Spring last year. Those who took that opportunity 10 years or so ago would now have dividends often of 20% and sometimes much more and big capital gain on top.

And some shares bought only last year are now already paying 20% plus dividends.

2. My biggest investment mistake with hindsight! I ignored advice from very successful investors like John Lee that reinvesting dividend is THE way to ultimate investment success. Note that John Lee now gets back in dividends his entire ISA stake every year!

Another example. I bought Games Workshop (LON:GAW) around 5 years ago at £4.60p (and as too often sold far too soon for something supposedly better. Note how current Games Workshop (LON:GAW) dividend is only 2%.and so only paying out to recent buyers a negligible amount that doesn’t add to the investment case. BUT at my buy price the yield is not 2% but 40%!! And the share has gone up 30 times. Hard to argue that the dividend impeded share price performance! And examples like that are how John Lee (and those who took his dividend advice) eventually got to receiving astonishing amount in dividends every year.

3. Just as THE time to buy shares and Investment Funds and/or Investment Trusts is after big market falls, so right now imo looks an exceptional buying opportunity for shares where already big dividends are likely to be increased year on year.

4. There are 2 ways for the current exceptional dividends to return to normal.

EITHER by the dividends getting cut OR by investors waking up to send the share prices much higher with dividends returning to normal levels.

Metatron

Would mention the most respected income share investor of recent times Geraldine Weiss's Guru stockscreen on Stockopedia's Income stockscreen section does not have any UK listed stocks qualifying currently

5th Sep '21

Hi ken

In 38 years investing I've never not reinvested a dividend.

There's nothing intrinsically good or bad about dividends but as Terry Smith has pointed out, ideally you'd prefer managements to reinvest their earnings and grow their businesses. The compounding effect is what drives long term returns. If you're getting dividends you have to do that for yourself and I'd generally hope that professional managements would be better at capital allocation in their own specialisms than I am, as an amateur generalist. But as you note, not reinvesting dividends really damages long term returns.

As a general rule, market crashes aside, I disregard very high dividend stocks. They fall in the too hard category. Sometimes the market is wrong, but not very often. Pre 2008, for instance, Lloyds Banking (LON:LLOY) yielded 10% for years. Investors convinced themselves the market had got it wrong and paid for that by taking a 90% capital loss. Over a decade later it's still 80% down.

The mid-range - say 4% to 6% - has tended to be more profitable. Insurers, for instance, have been in this situation for a while, for various reasons including changes in accounting rules. In particular Aviva (LON:AV.) was obviously mispriced back in early 2020 and the way the new CEO has rapidly sold off overseas busineses and is now planning a £4 billion return of capital has helped galvanise the share price - and the market being what it is, it will probably now overshoot on the upside.

But that return of capital will be accompanied by a drop in the share price and I'll then have to find a new home for the money. So it's all a bit moot in the long run.

Juanput

7th Sep '21

I like stocks with good dividends. I have several including Rio, SLP and PSN.

I like VSL which is paying around 9% at the moment. Any thoughts?

eParo

11th Sep '21

HMRC give Business Relief for a lot of AIM companies which if held for 2 years do not incur inheritance tax. Anyone know where I can find a list of companies which qualify? I have quite a few in ISAs so would be good to add some dividend payers which qualify for IHT relief.

HMRC give Business Relief for a lot of AIM companies which if held for 2 years do not incur inheritance tax. Anyone know where I can find a list of companies which qualify?

This has been discussed on Stockopedia many time before, most recently here:

https://www.stockopedia.com/co...

They really do need a proper search function.

AIM shares with dividends that are bouncing back

Dividends cuts across the market

A brighter outlook

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Ben Hobson

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