AIM investors set for record dividend payouts

The junior market is set to pay out £1 billion to shareholders in 2018. Holly Black looks at why AIM dividend plays should not be underestimated.

AIM investors are set to pocket a record level of income in 2018, as dividends paid by companies listed on the Alternative Investment Market head towards the £1 billion mark for the first time.

The first ever AIM Dividend Monitor from Link Asset Services reveals AIM companies have grown their dividend four times faster than those on the main stockmarket. Dividends have grown at an average of 18.6% a year over the past six years.

Link is forecasting growth of 19.6% in 2018, bringing total payouts to a stonking £1.16 billion. The total amount paid in dividends by AIM firms this year will be almost three times greater than the £417 million paid out in 2012. 

Justin Cooper, chief executive of Link Market Services, says: "We rightly associate AIM with young companies, hungry for capital to grow. The value of capital being return to investors via dividends is still much smaller than the amount being raised for investment, but the speed at which dividends are growing shows that more companies are coming of age and reaching that important milestone where they generate more cash than they absorb. It's frankly astonishing to see such consistent a dramatic growth year in, year out."

AIM investors have received a hefty £5.5 billion in dividends since 2012. Newly listed firms have been contributing to the growth, which Link expects to continue next year. Some of the best AIM dividend payers are UK businesses in the manufacturing, industrial services and IT sectors. 

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Link says the fact that many newly listed AIM firms are larger and more mature than they have historically been is helping to drive the trend. That's particularly good news for investors who access AIM stocks through their ISA, as they can enjoy gains tax free. 

Richard Power, head of smaller companies at Octopus Investments, says: "People often underestimate the dividend-paying capacity of AIM companies, but not only are their profits growing, which is supporting dividend growth, but they are increasing the proportion of profits they distribute too. That means dividend growth can easily outstrip the larger stocks on the main market, many of which have struggled to grow payouts at all in recent years."

Indeed, average annual dividend growth on the main market has been a comparatively paltry 4.9%. 

However, while dividends are growing, the overall yield for the market is still only around half of the FTSE 100 at 2.1%. Meanwhile, just one in three companies listed on AIM pays a dividend, compared to 80% of those listed on the main market. 

AIM, a fledgling market populated largely by younger, growing businesses, has been home to some incredible success stories in recent years, such as online fashion retailer ASOS and Majestic Wine. But there is a high failure rate on the index too, making it a risky place to invest.

Drinks wholesaler Conviviality, for example, listed on AIM in 2013, paid dividends totalling £22 million in 2017 and went bust earlier this year. 

James Henderson, manager of the Henderson Opportunities Trust, says:

"Often, some of the bigger dividend contributor on AIM were formerly listed on the main market but got into difficulties and stepped down onto AIM. Companies such as Johnson Service Group and Scapa were used to paying dividends and have continued that custom."

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.