Five AIM income stocks for your ISA in 2024

Here are five suggestions for income-related AIM-quoted shares for ISAs. Some of these companies have done poorly in recent times. The point of these recommendations is that there is recovery potential for these shares as well as an attractive income stream.

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Wynnstay Group (WYN)

Price: 400p

Forecast yield: 4.5%

Wynnstay Group (LSE:WYN) did poorly last year, but the agricultural products company continued its two decades-plus record of raising the dividend. Much of the dip in profit was due to an unwinding of the excess profit in the previous year due to commodity price moves. Farmers are having a tougher time, but there has always been a level of cyclicality for the business. The share price has fallen by one-third since the beginning of 2023, and I believe this is a good time to buy the shares for the long term. 

In the year to October 2023, revenue improved from £713 million to £735.9 million, while pre-tax profit slumped from £22.6 million to £9.2 million. That is after a one-off stock loss at the Glasson fertiliser business as raw material prices fell back to more normal levels. Net cash was £19 million. The full-year dividend was increased by 1.5% to 17.25p per share, which is still covered 1.9 times by earnings.

Wynnstay continues to invest in capacity with the first phase of investment in the Carmarthen feed mill completed. Capacity has also increased at the Astley seed plant.

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Farmer sentiment remains poor and adverse weather conditions have hit winter cereal sowings. This year’s first half is likely to continue to be tough, but there is potential for recovery in the second half. Analysts at Shore are maintaining their 2023-24 pre-tax profit forecast at £11.5 million, which is back to the 2020-21 level, with further improvement to £11.9 million the following year. This year’s dividend is expected to be 18.1p/share.

The share price has recovered since the results, but it is still less than 11 times prospective 2023-24 earnings.

Mattioli Woods (MTW)

Price: 570p

Forecast yield: 5%

Wealth management adviser Mattioli Woods (LSE:MTW) has a strong track record and most of its revenues are recurring – 90.8% in the first half.

Client assets of Mattioli Woods were flat at £15.2 billion at the end of November 2023. New clients continue to be added, offsetting withdrawals and weakness in performance. Mattioli Woods owns smaller company fund manager Amati Global Investors where funds under management have been hit by the poor performance of companies listed on the AIM market. There are signs that AIM could be gaining some upward momentum, which would help the fund manager.

Mattioli Woods subsidiary Custodian Capital is the investment manager to Custodian Property Income REIT Ord (LSE:CREI), which is in the process of merging with abrdn Property Income Trust Ord (LSE:API), and it will retain the role at the enlarged REIT with a combined property portfolio worth more than £1 billion.

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Interim revenues were 8% higher at £15.9 million. There is aways a second-half weighting, with full-year revenue estimated at £122.2 million, up from £111.2 million. Broker Singer believes that the upturn in the markets should underpin its current full year pre-tax profit forecast of £33.9 million, up from £30.7 million last year. A total dividend of 28.5p/share is expected.

Profit is set to steadily improve and that will enable single-digit growth in the dividend over the medium term, while maintaining a dividend cover of just below two times. The prospective multiple is 12.

Mattioli Woods has tended to trade on a relatively high multiple, but the poorer performance of stock markets in recent years has held back the share price, meaning that this is a good time to be buying the shares.

H&T (HAT)

Price: 347.5p

Forecast yield: 4.9%

Pawnbroker H&T Group (LSE:HAT) is growing its pledge book faster than expected and the overall business is growing strongly. However, weak jewellery sales and rising wages have hit forecasts, but profit is still going to grow in double-digit percentages.

The pledge book for the core business is set to increase from £130.9 million to £143.4 million by the end of 2024. Management has held down costs, but the 10% rise in the national living wage in April 2024 will push up the wage bill.

The purchase of the trading assets of Essex-based rival Maxcroft Securities for £11.3 million increases H&T’s exposure to the provision of working capital to the self-employed and small businesses. The average size per customer is £4,023, which is nearly 10 times the level at H&T.

Pricoa Private Capital is providing £25 million in additional financing for H&T. Even after the acquisition there should be £30 million of headroom for further growth.

There were forecast downgrades earlier in the year. Prior to the acquisition, Shore forecast 2024 pre-tax profit of £33.5 million, up from £26.6 million. The 2023 dividend is expected to be 17p/share, rising to 19p/share in 2024. That would increase the yield to 5.5%.

The share price has fallen by one-fifth so far this year and is trading at below net asset value. The prospective multiple for 2024 is six. Buy for growth.

Serica Energy (SQZ)

Price: 172.95p

Forecast yield: 12.7%

Acquiring Tailwind Energy last year made Serica Energy (LSE:SQZ) one of the top 10 oil and gas producers in the UK North Sea. It also made it highly cash generative. Even if the oil price falls Serica Energy could continue to generate more than enough cash to pay increasing dividends.

The 2024 production guidance is between 41,000 and 48,000 barrels of oil equivalent/day (boe/day). Last year’s proforma production was 40,121boe/day. The Erskine field has been shut in since 25 January because of a compressor problem and production is not expected to restart until March.

Profit is not expected to grow with oil and gas prices at their current levels, but Serica Energy should continue to be significantly cash generative, and the earnings cover will enable the dividend to be increased while still being well covered by earnings. In fact, the cash pile will continue to rise sharply even with higher dividend payments.

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Broker Zeus estimates free cash flow of £141 million in 2023 and forecasts £266 million for this year. It expects a 2023 dividend of 22p/share, rising to 23p/share this year. That is slightly lower than consensus. Net cash is forecast to be £264 million at the end of 2024.

Mitch Flegg is stepping down as chief executive after the publication of the 2023 results. Even so, he bought 75,000 shares at 190p each. Other directors are also buying. Sian Rees acquired 2,114 shares at 187p each, David Latin 117,255 shares at 184p each and Malcolm Webb 16,367 shares at 183p each. Buy for the attractive yield.

Somero Enterprises (SOM)

Price: 245.5p

Forecast yield: 6.8%

Somero Enterprises (LSE:SOM) is different to the other companies in this article in that it does not have a record of steady dividend increases over its two decades on AIM. Somero uses around two-thirds of earnings for its normal dividends, so they move in line with those earnings. However, it does pay special dividends out of its excess cash. The most recent special dividend was for 2021 and it was 19.7 cents/share. Currently, net cash is $33 million.

The floor levelling equipment supplier is exposed to the movements of the construction sector, although the international spread of business can help to offset weakness in some regions. The US had a stronger second half because of non-residential construction demand, but annual revenue still fell by 13%. There were improved performances in Australia and Europe, helped by parts and services revenues. A new service centre will be up and running in Belgium by the end of the year.

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New product launches are helping to hold up demand in poor economic conditions around the world. The first electric floor levelling machine was launched in January.

Last year was tough for Somero and adjusted pre-tax profit is estimated to have fallen from $42.3 million to $32.5 million. In 2024, revenue is forecast to remain flat at $120.7 million with pre-tax profit slipping to $31.6 million. This shows the resilience of the business and, when interest rates fall and the construction market recovers, profitability will also recover.

The 2023 normal dividend is expected to be 30 cents/share, and this will decline to 27.9 cents/share based on current estimates, which would reduce the yield to 6.3%. There is unlikely to be a special dividend in the short term, but as the cash pile increases there will be scope for another one. The shares are trading on 10 times prospective earnings. Buy for recovery and income.

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