Covid-19 crisis batters AIM returns, and experts warn these could drop by almost 50%.
Dividends from companies listed on the Alternative Investment Market (Aim) are set to fall a third this year due to the Covid-19 crisis.
The junior market, which is home to around 850 small to medium-sized companies with a combined market cap of £104 billion, disappointed investors in the second quarter.
Dividend payouts fell by a third to £266.8 million, according to a dividend monitor by financial administration company Link.
These payments had already started to show signs of falling in Q1 when they dropped by 24.1% to £197.4 million.
In Q2, two-fifths of companies cancelled dividends completely, while another tenth cut them, in a quarter that is usually a seasonal high point for AIM dividends.
But AIM dividends still fell by less than the London Stock Exchange main market, where payouts halved in Q2.
Link predicted dividends will fall by at least a third this year to £873 million, but could fall by as much as 48% to £698 million under the worst-case scenario.
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It comes after payouts hit a record high of £1.3 billion in 2019, up 16% year on year.
But Link chief executive of corporate markets Susan Ring said that even before the Covid-19 pandemic struck, AIM was not on track for another year of high dividend growth.
This is because the UK economy has already weakened, and not all dividend cuts in Q2 2020 were due to Covid-19 uncertainty.
Eddie Stobart group, which was saved from administration in late 2019 by a capital injection, accounted for around a sixth of the total dividend decline after being one of AIM’s top payers in 2018 and 2019.
Ring said while 2020 will only be a temporary low point for the AIM market, dividends are unlikely to top their previous highs until 2022 or 2023 at the earliest.
Teodor Dilov, fund analyst at interactive investor, say: “In the past, income investors might have switched into shares that were perceived to be safer and offer an attractive yield in times of falling dividends, but the coronavirus crisis has seen a number of income stalwart stocks cutting, deferring or even cancelling dividend payouts.
“Dividends can always be deferred or reduced in difficult times, but this is much more likely to happen at this moment in time.”
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Dividends are less common among AIM companies than companies listed on the main market.
Over the next 12 months, Link forecasts that AIM shares will pay 1.1% in the best-case scenario, or 0.7% in the worst case.
This compares to 3.6% on the main market over the next 12 months if Link’s best case materialises, or 3.3% under the worst-case outcome.
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