Interactive Investor

AIM's 20 most prolific dividend payers

31st August 2018 16:41

Andrew Hore from interactive investor

Some AIM companies have grown the dividend for a decade or more. Former AIM writer of the year Andrew Hore names them and assesses their potential.
 

Around 30% of AIM companies pay dividends or have said they will start paying dividends – either because they have just floated or because they have reached a point in their development where they can afford to.

Some of these dividend payers have a track record of continuing growth in dividend payments. They tend to be some of the better performers on AIM.

Looking through the historical dividend records, 20 AIM companies have been identified as having 10 or more years of consecutive growth in dividends. It is possible that year end changes or special dividends could complicate the search and lead to a candidate being missed, but this is a representative list.

Six out of the top nine performers in terms of share price over 10 years are on this list. Admittedly, the best of these - accesso Technology Group - does not pay a dividend and neither does the third best performer Hutchison China Meditech Ltd.

Victoria, which is the eighth best share price performer stopped paying dividends in 2014, just when it started its consolidation strategy and the share price began to rise. 

Even so, the fact that a company consistently increases its dividend appears to be a much better indication of a rising share price than when a company does not return money to shareholders.

That may seem obvious but sometimes these dividend payers can be ignored as boring in favour of much more risky companies with growth potential and little else. 

Surprising omissions

There are companies that you may have expected to be on the list. Animal feed and distribution business NWF Group has a record of growing dividends going back two decades, but during that period there are a couple of years when the dividend has only been maintained. The lack of an increase in those years stops NWF being in the list even though it has not cut its dividend. 

Churchill China is another company that has not cut its dividend for around 15 years, but it did keep it unchanged at various times during the period. 

It is no great surprise that oil and gas or mining or drug discovery companies do not make the list because most of them do not generate any cash. A small minority do pay dividends but, if they do, they are unlikely to have a long track record. Highland Gold Mining Ltd paid a dividend 15 years ago, but there have been years when a dividend has not been paid and it has also gone up and down in other years. 

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It should be highlighted that this list includes document and engineering software provider IDOX, which has run into problems and not paid an interim dividend. It is unlikely that IDOX will pay a final dividend and certainly not one that will be high enough for the dividend growth to extend beyond the current 11 years.

This does provide a warning that things can go wrong even with these apparently more stable businesses. Even after its recent decline, the IDOX share price is still three times what it was 10 years ago. 

Six of the 20 companies moved from the Main Market and they are all longstanding businesses. Some of the track record of dividend growth for these companies covers the period when they were still on the Main Market.

Recruitment firm Harvey Nash Group has been on AIM for little more than one year, but it has 11 years of growth in dividend. Harvey Nash is being taken over and it is paying one last interim dividend. 

Performance

All 20 companies have higher share prices over a 10-year period. Specialist care services and homes provider CareTech Holdings stands out as the poorest performer on the list. The share price rise is just over 3% and even the total return figure, including dividends, is around 18%.

To put this in perspective, the AIM All Share index is around 38% higher over the period, while the FTSE All Share index is up by 44%, and CareTech is the only one of the companies not to significantly outperform. 

CareTech differs from most of the other companies because it has high borrowings. Net debt was £147 million at the end of March 2018, although this is backed by net assets of £208.3 million. That may have hampered investor interest. 

Earnings per share have increased by more than 140% over 10 years, which is better than many of the other companies that have performed much better – in fact, First Derivatives has grown its earnings by a similar percentage, but it is the third-best performer. 

This indicates a lowering of the profit multiple over the period. That could be because CareTech was in a more favoured sector a decade ago and fears relating to cost increases and the rates paid by the government for the services have hit the rating. It also suggests that much of the longer-term growth may have already been discounted 10 years ago. 
Software company First Derivatives has had a huge re-rating over the same period and that rating of more than 50 times this year's prospective earnings is certainly anticipating strong growth over a number of years. 

Source: interactive investor            Past performance is not a guide to future performance

The share prices of 17 of the 20 companies have grown faster than earnings. In nearly all these cases the share price growth has been more than double the earnings growth.

That has probably been helped by demand for investments eligible for IHT relief and the inclusion of AIM shares in ISAs. These dividend payers are perfect for these tax incentives. 

Total returns

When the dividends are included the total return is higher, but it is not as significant for the better performers as it is for some of the companies where the share price has not risen as much. 

Agricultural supplies and retail company Wynnstay Group has a total return of 130%, compared with a share price rise of 94%. Wynnstay is involved in cyclical markets so there can be periods of profit and share price weakness, but the board has a policy of consistent growth in the dividend even if profit dips in a single year. 

Embedded computer boards designer and manufacturer Concurrent Technologies has a total return of 186% over 10 years, compared with a share price rise of 134%. Again, the share price progress is not smooth, but there is a good performance over the decade.

The chart does show an overhyped technology share price – just one of many – back in 2000 at the time of the tech boom and that can mask the long-term progress of the business. Concurrent invests heavily in its technology and paying the dividend does not hamper this.

Company Ticker Years of dividend growth Share price rise over 10 years (%) Total return over 10 years (%) Forecast yield (%)
Young & Co's Brewery YNGA 21 223 264 na
FW Thorpe TFW 15 539 605 na
First Derivatives FDP 14 2,220 2,290 0.6
Concurrent Technologies CNC 13 134 186 2.9
Nichols NICL 13 494 581 2.4
RWS Holdings RWS 13 525 566 1.6
Wynnstay Group WYN 13 94 130 2.7
Brooks Macdonald BRK 12 794 809 2.4
Cohort CHRT 12 91 108 2.3
Maintel Holdings MAI 12 626 792 4.4
Abcam ABC 11 1,600 1,600 0.8
Cello Health CLL 11 93 122 2.8
GB Group GBG 11 1,700 1,740 0.5
Harvey Nash HVN 11 264 350 3.4
IDOX IDOX 11 173 205 nil
Judges Scientific JDG 11 2,250 2,530 1.3
Mattioli Woods MTW 11 208 233 2.3
CareTech Holdings CTH 10 3 18 2.7
Dart Group DTG 10 4,810 4,870 0.9
Zytronic ZYT 10 208 271 4.5
Source: Sharepad        

Past performance is not a guide to future performance

Yields

There are some attractive forecast yields, with 11 being more than 2% and three of these more than 3%. The lower yields tend to be for companies where the share price has been multiplied a number of times, such as First Derivatives and Dart Group.  

Touch sensors manufacturer Zytronic has the best forecast yield of 4.5%, following a doubling of the interim dividend to 7.6p a share. Yet, Newcastle-based Zytronic still has £13.7 million in the bank, prior to the latest dividend being paid. Growth is coming from the gaming sector but demand for cash machines has been weak.

The strong performance still holds true for companies with fewer years of dividend growth. Only six out of the 84 companies that have raised their dividend for at least five years in a row have a lower share price over five years. Some of these companies were not quoted for the full 10 years but, of those that were, only three have lower share prices over 10 years.

Next Fifteen Communications Group, one of my AIM share tips for 2018, has eight years of dividend growth. Other companies that appears set to continue to grow their dividends include self-storage sites operator Lok'nStore (seven years growth), Gooch & Housego (seven years), telecoms services provider AdEPT Telecom (six years), Churchill China (six years) and rail optimisation software provider Tracsis (five years). 

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

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, and 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.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct. Members of ii staff may hold shares in companies included in these portfolios, which could create a conflict of interests. Any member of staff intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. We will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, staff involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.

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.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct.  Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.