10 high-yield AIM shares for adventurous income investors

by from Stockopedia |

There are plenty of good quality companies on AIM paying generous, well-covered dividends, which offer income diversification. Stockopedia's Ben Hobson lists them here.

The Alternative Investment Market (AIM) - the UK's junior exchange for growth companies - is currently trading around 10% lower than it was in early October. For a time of year better known for fear and fireworks, AIM has served up both in abundance in recent weeks.

In periods of uncertainty the AIM All-Share has a habit of being hit hard. In the past, the problem was that speculative story stocks used to dominate the market, which magnified its volatility when investors were rattled. While their numbers have shrunk in recent years, AIM is still (by its nature) a market made up largely of smaller stocks, but things have changed a bit.

While many of AIM's 928 companies are small, larger stocks have become a very dominant feature in recent years. Currently, just 218 companies worth between £100m and £1bn-plus account for 81.9% of the AIM total. Meanwhile, 710 companies each valued at up to £100m account for just 18.2% of the market.

Some of the largest groups include the online fashion retailers ASOS and Boohoo, soft drinks group Fevertree and legal funding specialist Burford Capital.

Analysts at advisory firm UHY Hacker Young reckon that the larger, institutional grade names are responsible for a sharp rise in the average value of daily share trading on AIM. Their research shows that AIM companies saw the average value of daily trading rise by 41% over the twelve months to October to £327,580 in 2017/18 from £232,140 previously.

UHY claim that the improved reputation of AIM has encouraged larger and more financially robust businesses onto the market, with brokers now more wary of floating more speculative firms.

No changes to the tax benefits

For investors, AIM has been a source of both incredible success stories, disappointments, bankruptcies and the occasional fraud. Yet the tax benefits of investing in AIM shares - which some believed to be at risk in the recent Budget - remain intact. These stocks can be held in tax-efficient wrappers like ISAs and, subject to some rules, they can also be protected from inheritance tax.

With this in mind, this week's screen takes a look at AIM after the drama of October, and puts the focus on high, but relatively safe, dividend yield stocks. Robust dividend policies can be a useful pointer to financially strong businesses that are maturing. On AIM, that can mean getting the excitement of fast growth with the security of the cashflows that are needed to sustain dividend payouts.

This screen looks for a rolling dividend yield of more than 4%, together with dividend cover of more than 1.2x and a dividend payout streak of more than one year. For added security, we applied a minimum StockRank requirement of 75, which means these stocks will have well above average exposure to high quality, appealing valuation and positive momentum that on average tend to be the hallmarks of winning investments.

Name Mkt Cap £m Yield % 5y Average Yield % Div Cover Div Gwth Streak Stock Rank
Epwin 117.1 6.7 4.1 1.8 3 98
Shoe Zone 90.6 6.2 3.2 1.6 3 98
Highland Gold Mining 486.2 5.9 9.8 2 2 97
Flowtech Fluidpower 69 5.3 3.1 2.4 3 88
Marshall Motor Holdings 98.1 5.2 1.5 3.6 2 89
Somero Enterprises Inc 203.5 4.9 3.2 1.6 5 96
Gateley Holdings 171.8 4.7 2.4 1.6 2 90
H & T 96 4.5 3.6 2.8 3 86
Character 106.1 4.2 4.3 1.9 4 87
Park 147.1 4 4 1.8 8 89

Source: Stockopedia       Past performance is not a guide to future performance

If anything, this list shows that it's certainly possible to find above-average yields in AIM stocks, together with some of the most popular safety measures. There is no argument that some of these companies may have come under pressure recently, so careful research is essential. Flowtech Fluidpower is definitely an example of a share that unsettled the market recently but remains a contender against these kinds of strategy rules. 

Construction supplies and services firm Epwin leads the list based on a yield of 6.7%, followed by a variety of other ideas including the retailer Shoe Zone, mining group Highland Gold and car retailer Marshall Motor.

While many investors will be wary of taking too many risks at the smaller end of the market right now, the performance of AIM over the past two years - up 24% - shows the kind of performance that it's capable of. Dependable high yielding shares are traditionally seen as much larger FTSE stocks but there are good reasons to look to AIM for these income ideas too. 

About Stockopedia

Stockopedia helps individual investors beat the stockmarket by providing stock rankings, screening tools, portfolio analytics and premium editorial. The service takes an evidence-based approach to investing, and uses the principles of factor investing and behavioural finance to help investors make better decisions.

Interactive Investor readers can get a free 14-day trial of Stockopedia by clicking here.

These investment articles are simply for generating ideas. If you are thinking of investing they should only ever be a starting point for your own in-depth research.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.