Dividends paid by companies quoted on the Alternative Investment Market (AIM) are set to pass the £1 billion mark this year - and that’s promising news for investors looking for some all-cap income diversification.

The milestone comes as payout growth from AIM stocks tripled between 2012 and 2018. Dividends grew by an average of 15 percent every year once you adjust for new issues and delistings.

Despite the growth from AIM stocks, dividends in the Main Market still make up the vast bulk of overall payouts, although growth is understandably lower at 4.9 percent. In fact, overall dividends from equities are forecast to come in at £97.8 billion in 2018, but there is a huge dependency on the top 15 company payers. Last year, the top 15 accounted for three fifths of all UK dividends. The top five accounted for nearly two-fifths.

A maturing market

Across nearly 1,000 quoted companies, the yield on AIM stands at 1.2 percent. That’s some way off the 3.9 percent average on the Main Market. But bear in mind that only about a third of AIM firms pay a dividend (compared to four-fifths on the Main Market). When you strip out AIM firms that don’t make payouts, the yield rises to 2.1 percent.

Analysis by Link Asset Services suggests the improving picture for AIM dividends is down to both the increasing maturity of quoted firms and the larger size of new companies coming to the market. Over the past five years, the market cap of the average AIM IPO was £20 million, which was up from £12 million in the five years previous.

Interestingly, AIM dividends also offer less concentration and broader sector diversification than the Main Market. In particular, they have a greater focus on industrials and IT, and less dependence on oil companies.

Screening for AIM dividends

This year it’s expected that the total dividend payout from AIM firms will reach £1.16bn. But how can you begin filtering the market for the strongest, safest yields? This week, we’ve taken a look at the highest rolling yields available on the market, adding in a few safety nets along the way.

To start with, the search focuses on companies whose dividend payments are covered by earnings (dividend cover) by at least 1.2 times. I wanted to see at least two years of dividend growth from…

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