AIM Dividend Monitor 2019

10 September 2019 / Link Group

AIM dividends soaring to new record in 2019, having breached £1bn for the first time in 2018

• H1 2019 AIM dividends jumped 23.9% year-on-year, equivalent to 13.9% underlying growth (excluding one-off specials)
• AIM payouts rose 15.1% year-on-year to a record £1,116m in 2018, rising above £1bn for the first time; underlying growth was 16.4%
• AIM dividends have tripled since 2012, compared to a 45% increase in main-market dividends
• Healthcare, financials, and industrial goods led the pack in H1 2019, but retail and building materials & construction lagged behind
• Prospective yield on AIM stocks up from 1.2% a year ago to 1.5% owing to rising payouts and lower share prices
• Excluding companies that pay no dividend at all, AIM will yield 2.5%, only slightly behind the main-market mid-caps
• 2019 forecast record £1,304m, up 16.8% in headline terms, 12.0% underlying
• 2020 forecast headline growth of 2.3% to £1,333m, equivalent to underlying growth of 6.9%

Dividends from AIM companies jumped 23.9% on a headline basis in the first six months of 2019, according to the latest annual AIM Dividend Monitor from Link Group, reaching a record total of £633m for the first half of the year. The growth rate was flattered by unusually large special dividends, but even on an underlying basis, the £571m total was 13.9% higher compared to the first half of 2018. A little under half of this increase was contributed by new listings. 2019 is set for a record full-year total.

The strong start to 2019 follows a 15.1% increase in 2018, taking AIM companies’ total payouts to £1,116m last year, breaching the £1bn mark for the first time.

Among the larger-paying AIM sectors, the fastest underlying growth so far this year has come from healthcare, financials, and industrial goods and support companies, but AIM’s retailers paid out a fifth less year-on-year, thanks mainly to the bankruptcy of Conviviality. Building materials & construction dividends also fell.

The current run rate means that in the twelve months to the end of June 2019, AIM’s dividends had almost exactly tripled since 2012, an annualised growth rate of 18.2%. By comparison, main-market dividends had grown 45% over the same period, an annualised 5.9%, or 5.0% once the weaker value of the pound is taken into account. The AIM total is still relatively small, however. Despite the dramatic growth rates being delivered by AIM companies, the entire crop of their dividends over the last 12 months only slightly exceeded the payout of Reckitt Benckiser, the twenty-first largest main-market dividend payer. Even the main-market small-caps paid £4.8bn over the same period, four times the AIM total.

AIM companies have relatively less free cash flow while they are in their growth phase, so their dividend fire-power is less than more mature businesses. Their yield reflects this disparity. Over the next twelve months, AIM stocks will yield a collective 1.5%, up from 1.2% this time last year, owing to a combination of lower share prices and growing payouts. If, however, companies that do not pay a dividend at all are excluded, then the yield of those that do will be 2.5%, only a little way behind the 3.1% from the mid-caps on the main market. Dividend payers in the UK’s top 100 collectively yield 4.5%.

Link expects AIM to continue to deliver strong income growth for investors. For this year, Link leaves its forecast (made a year ago) unchanged at a record £1,304m, an increase of 16.8% in headline terms. Link expects this year’s underlying growth to be a little slower than initially expected, now 12.0%, down from 14.0% predicted this time last year. For 2020, lower special dividends are likely to impact headline growth, and a slowing economy is likely to undermine the underlying expansion. Link forecasts 2020 headline growth of 2.3% to £1,333m, equivalent to underlying growth of 6.9%.

Michael Kempe, chief operating officer of Link Market Services said: 

“Fewer AIM companies pay dividends than their main-market counterparts, simply because so many are still in their early capital-hungry phase. But not only has the proportion of AIM companies paying dividends risen, but those coming to market are doing so earlier, and those paying them are growing their dividends rapidly.

“Dividend growth matters because it lies at the heart of share valuations. The faster the growth rate, the higher the value. And the more visible the dividend stream, the more certain an investor can be about its value. It is obviously very hard to predict growth rates for young companies, but even the very presence of a dividend in the first place is a useful hygiene factor.

“Despite rapid ongoing dividend growth, the value of AIM companies has fallen sharply over the last year, as investors raise the risk premium they demand to hold UK assets in the face of an uncertain, and potentially damaging, Brexit outcome. Any associated economic slowdown will certainly impact the ability of AIM companies to grow too. Thinking longer term, however, the trend of dividends from AIM companies remains upwards, and that should drive shareholder returns. In this context, braver investors may consider current low valuations of AIM stocks as an opportunity.”

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