Dividends from AIM companies jumped 23.9 per cent on a headline basis in the first six months of 2019, according to the latest annual AIM Dividend Monitor from Link Group, reaching a record total of £633m for the first half of the year. The growth rate was flattered by unusually large special dividends, but even on an underlying basis, the £571m total was 13.9 per cent higher compared to the first half of 2018. A little under half of this increase was contributed by new listings. 2019 is set for a record full-year total.
The strong start to 2019 follows a 15.1 per cent increase in 2018, taking AIM companies’ total payouts to £1,116m last year, breaching the £1bn mark for the first time.
Among the larger-paying AIM sectors, the fastest underlying growth so far this year has come from healthcare, financials, and industrial goods and support companies, but AIM’s retailers paid out a fifth less year-on-year, thanks mainly to the bankruptcy of Conviviality. Building materials & construction dividends also fell.
The current run rate means that in the twelve months to the end of June 2019, AIM’s dividends had almost exactly tripled since 2012, an annualised growth rate of 18.2 per cent. By comparison, main-market dividends had grown 45 per cent over the same period, an annualised 5.9 per cent, or 5.0 per cent once the weaker value of the pound is taken into account. The AIM total is still relatively small, however. Despite the dramatic growth rates being delivered by AIM companies, the entire crop of their dividends over the last 12 months only slightly exceeded the payout of Reckitt Benckiser, the twenty-first largest main-market dividend payer. Even the main-market small-caps paid £4.8bn over the same period, four times the AIM total.
AIM companies have relatively less free cash flow while they are in their growth phase, so their dividend fire-power is less than more mature businesses. Their yield reflects this disparity. Over the next twelve months, AIM stocks will yield a collective 1.5 per cent, up from 1.2 per cent this time last year, owing to a combination of lower share prices and growing payouts. If, however, companies that do not pay a dividend at all are excluded, then the yield of those that do will be 2.5 per cent, only a little way behind the 3.1 per cent from the mid-caps on the main market. Dividend payers in the UK’s top 100 collectively yield 4.5 per cent.
Link expects AIM to continue to deliver strong income growth for investors. For this year, Link leaves its forecast (made a year ago) unchanged at a record £1,304m, an increase of 16.8 per cent in headline terms. Link expects this year’s underlying growth to be a little slower than initially expected, now 12.0 per cent, down from 14.0 per cent predicted this time last year. For 2020, lower special dividends are likely to impact headline growth, and a slowing economy is likely to undermine the underlying expansion. Link forecasts 2020 headline growth of 2.3 per cent to £1,333m, equivalent to underlying growth of 6.9 per cent.
Michael Kempe, chief operating officer at Link Market Services said:
“Fewer AIM companies pay dividends than their main-market counterparts, simply because so many are still in their early capital-hungry phase. But not only has the proportion of AIM companies paying dividends risen, but those coming to market are doing so earlier, and those paying them are growing their dividends rapidly.
“Dividend growth matters because it lies at the heart of share valuations. The faster the growth rate, the higher the value. And the more visible the dividend stream, the more certain an investor can be about its value. It is obviously very hard to predict growth rates for young companies, but even the very presence of a dividend in the first place is a useful hygiene factor.
“Despite rapid ongoing dividend growth, the value of AIM companies has fallen sharply over the last year, as investors raise the risk premium they demand to hold UK assets in the face of an uncertain, and potentially damaging, Brexit outcome. Any associated economic slowdown will certainly impact the ability of AIM companies to grow too. Thinking longer term, however, the trend of dividends from AIM companies remains upwards, and that should drive shareholder returns. In this context, braver investors may consider current low valuations of AIM stocks as an opportunity.”