AIM dividends: Who’s cutting and who’s raising the payout

by Andrew Hore from interactive investor |

Our award-winning AIM writer identifies companies who may cut the dividend and those boosting income.

Even dividends that have already been announced are being stopped as companies worry about their short-term cash positions as the Covid-19 virus has an increasing effect on trading. 

Footwear retailer Shoe Zone (LSE:SHOE) has decided not to pay the 8p a share final dividend that was agreed by shareholders at the AGM on 5 March, and was due to be paid the day after the decision was announced.

Heavitree Brewery (LSE:HVT), Johnson Service Group (LSE:JSG) and Quartix Holdings (LSE:QTX) have said that they are no longer going to pay final dividends prior to their AGM resolution votes to pass the dividend payments, while Joules (LSE:JOUL) and Croma Security Solutions (LSE:CSSG) will not be paying the announced interim dividends. 

Many of these companies have net cash but, with activity levels plummeting, they believe it is better to keep a financial buffer. Some companies have indicated that they will reassess the position in a few months.

Aquis Stock Exchange-quoted brewer Shepherd Neame has decided not to pay a 6p a share dividend, announced eight days earlier. 

Dividends Revoked
Company Activity Dividend (p) Dividend cost (£m) Net debt/ (cash) (£m)
Shoe Zone (LSE:SHOE) Retailer 8 4 -11.4
Croma Security (LSE:CSSG) Security services 0.75 0.112 -2.28
Heavitree Brewery (LSE:HVT) Pubs 4.25 0.224 6.07
Johnson Service Group (LSE:JSG) Workwear and linen 2.35 8.7 87.7
Joules Group (LSE:JOUL) Fashion 0.77 0.7 -2.1
Quartix (LSE:QTX) Telematics 10 4.8 -7.7

Source: Sharepad

Income investors look to the long term

It is difficult to criticise these u-turns in dividend policy because matters are moving rapidly, and it makes sense to ensure that the company is still around when trading starts to pick up again. When that will occur is uncertain. 

There could be other companies that have already announced a dividend that could change their minds.

In some cases, the dividend does not cost much. IT equipment distributor Northamber (LSE:NAR) is paying an interim dividend of 0.3p a share, which costs £82,000. The shares go ex-dividend in the middle of April and is payable on 15 May. That will not make much of a dent in the cash of £14.7 million at the end of 2019. 

Cake and specialist bread maker Finsbury Food (LSE:FIF) announced an interim of 1.23p a share, which will cost £1.6 million, and the shares go ex-dividend on 2 April. Profit is growing and the dividend is well-covered, but debt is high. 

Net debt is £32.6 million, and it is expected to increase by the June year end before falling next year. Capital spending is going to be lower than in the past. There is a £55 million revolving credit facility, but Finsbury will not necessarily want to use up too much of the facility. 

Van Elle (LSE:VANL) is paying its 0.2p a share interim dividend on 27 March. This has already been reduced significantly, but the ground engineer still has a chance to change its mind.

Some companies are not announcing the expected dividends with their results or even ahead of them. Homewares supplier Portmeirion (LSE:PMP) was intending to maintain the final dividend at 29.5p a share, but it has decided not to announce one with its full-year figures.

That will save £3.1 million, although management says that it will review the position in three months and may declare another interim dividend. Net debt of £12.3 million at the end of 2019.

Dividends not as expected
Company Activity Dividend (p) Dividend cost (£m) Net debt/ (cash) (£m)
Portmeirion (LSE:PMP) Homewares 29.5 3.1 12.3
SpaceandPeople (LSE:SAL) Marketing 0.75 0.15 (0.6)

Source: Sharepad

Defiant companies are increasing the payout

However, other companies are paying increased dividends. Scientific instruments manufacturer Judges Scientific (LSE:JDG) has raised its final dividend by 25% to 35p a share, which will cost £2.2 million. The board did seriously consider the decision but felt that, despite the uncertainty, it was correct to raise the dividend. 

Judges had already paid a special dividend of 200p a share and an interim of 15p a share. That left net debt of £2 million at the end of 2019, although Judges should move into net cash this year. Gross cash is £14.1 million. 

Kettle components maker Strix (LSE:KETL) announced the expected 10% increase in final dividend to 7.7p a share. This is despite the fact that net debt is going to increase this year due to investment in a new Chinese factory.

Strix has had some disruption to production but nothing significant. However, there is always the concern that demand from the kettle makers will slump if consumers are not buying appliances. 

Healthcare IT firm EMIS (LSE:EMIS) has regularly increased its dividend by 10%, and the latest final payout of 15.6p a share is no exception.

Around three-fifths of revenues are recurring, and the GP and pharmacy software is required in these times, so most of the business should continue. There are some one-off revenues so pre-tax profit might fall this year. Even so, cash will still be generated, so net cash should rise from £31.1 million.

Animal nutrition supplier Anpario (LSE:ANP) increased its final dividend by 10% to 5.5p a share. It has £13.8 million in the bank. 

Dividends announced
Company Activity Dividend (p) Dividend cost (£m) Net debt/ (cash) (£m)
Alliance Pharma (LSE:APH) Pharma 1.06 5.62 59.2
AB Dynamics (LSE:ABDP) Automotive 1.61 0.36 35.2
Applegreen (LSE:APGN) Roadside retailer € 0.01 € 1.32 € 470.70
Arena Events Group (LSE:ARE) Events services 0.75 1.1 31.7
Churchill China (LSE:CHH) Ceramics 22.2 2.44 -15
Ebiquity (LSE:EBQ) Media consultancy 0.8 0.61 5.8
Epwin (LSE:EPWN) Window components 3.2 4.57 16.4
Fevertree Drinks (LSE:FEVR) Mixer drinks 9.7 11.3 128
Gama Aviation (LSE:GMAA) Aircraft services 2.2 1.4 $24.9
Inspired Energy (LSE:INSE) Energy services 0.48 3.43 33
James Halstead (LSE:JHD) Floorcoverings 4 8.32 -68.7
Warpaint (LSE:W7L) Cosmetics 2.9 2.22 -2

Source: Sharepad

Will these companies cut the dividend?

There are still plenty of results to come in the next few weeks, especially as some have been delayed due to Covid-19. These will be seriously considering whether they should be paying a dividend or if it should be lower than originally planned. 

Arena Events (LSE:ARE) is in the process of securing a cash injection, at a premium to the market price, from an investor, so paying a dividend may not be compatible with that. A year-end change to March also complicates things. Trading was going well until this month. A 0.75p a share final dividend has been anticipated. 

Petrol service stations operator Applegreen (LSE:APGN) has built up significant net debt through acquisitions. The net debt at the end of June 2019 was €470.7 million, although that includes €391.1 million held in the Welcome Break subsidiary, which is non-recourse to Applegreen. Even though the €1.32 million cost of the dividend is not high, the Ireland-based company depends on consumer activity and travel, so it may be better to conserve cash. 

Energy services adviser Inspired Energy (LSE:INSE) has also built up debt via acquisitions. The expected dividend would cost around £3.4 million, and it would seem prudent that the board reconsiders the dividend so that the debt does not become more of a burden.

Marketing and media services provider Ebiquity (LSE:EBQ) has reduced its borrowings in the past year by selling a division. The board may believe that paying a dividend at this time of uncertainty is not the right thing to do. 

Gama Aviation (LSE:GMAA) is in the process of disposing of its stake in its US associated company. The full consideration is $33 million. That will significantly boost the balance sheet where net debt was $24.9 million. However, the initial payment is $13 million and the other $20 million will be paid over the next four years. 

The plan was to use the funds for further consolidation in the aviation services sector. That was at the beginning of March, and the aviation sector has been particularly hard hit since then. The dividend cost would be £1.4 million, so just over $1.5 million depending on the exchange rate. Bad debts may be something that needs to be considered in this sector so retaining as much cash as possible would be sensible.

Window components manufacturer Epwin (LSE:EPWN) has been reducing its borrowings, but window replacement is not going to be a high priority in the short-term and trading is likely to be tough. The dividend was being rebuilt after a cut in 2018 but paying £4.57 million as a final dividend might be imprudent.

Alliance Pharma (LSE:APH) has successfully reduced its net debt to £59 million and there are spare bank facilities. However, the drug company may feel paying £5.6 million in dividends is not prudent at this time. 

Cosmetics firm Warpaint London (LSE:W7L) has suffered trading disappointments in the past couple of years and the cash pile is reducing. Paying an unchanged dividend that will cost £2.2 million may not be a good idea.

These businesses should maintain their dividend 

Hospitality tableware manufacturer Churchill China (LSE:CHH) has a customer base dependent on restaurants and pubs. Trading was strong last year but it is likely to be weaker in the short-term. However, Churchill is keen not to cut the dividend if it does not need to. The cash in the bank will easily cover the cost of the final dividend and other short-term cash outflows. 

Fevertree (LSE:FEVR) has a large cash pile so its dividend appears safe for now, even though trading was already getting tougher before Covid-19. Pub sales will slump, but there is scope for some of that to be made up for online. 

James Halstead (LSE:JHD) and AB Dynamics (LSE:ABDP) also have plenty of cash and that means that they could maintain their next dividends.

Every one of these companies has to make a decision that suits their requirements, and even a large cash pile may not be enough to make it wise to distribute cash to shareholders. 

Andrew Hore is a freelance contributor and not a direct employee of interactive investor.

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